In the not so distant past, investing was an arduous task, requiring a financial adviser or stockbroker to execute trade orders. It was also unreasonably expensive, requiring one to fork over massive commissions.
Now computers and smart-phones have ushered in an investing and trading revolution, completely changing the way investors and traders access the markets. Would be traders and investors can now access a myriad of DIY investing platforms and online brokers offering more tools and information than ever before and more easily accessible than ever before as well. The competition among brokerages to gain clients has effectively driven down costs too, offering clients huge savings and boosting returns.
Recent years have seen a massive growth in the amount of investors and traders taking part in the market, seeking to build their fortune through new online methods.
As with any DIY endeavor, understanding what tools work best is a hurdle for aspiring investors and traders. Investing platforms provide an easily accessible place to buy, sell and hold all your investments, however, the massive number and variety of options leaves many investors baffled about where to start. Picking the right platform and combination of offerings can make a major difference in one’s success and overall costs.
Understanding Fee Structures
Before getting started with any DIY investment platform, one must carefully consider his or her own investment goals and approach to investing. If you are a long term investor interested in holding investments as a way to manage a fairly large sum of money then you may find advantages to a flat bundled administrative and transaction fee rather than percentage-based fee structure. Shorter term investors and traders who plan on buying and selling instruments on a regular basis should carefully consider transaction or “dealing” charges, which can mount with each trade.
Consider the Benefits of an Individual Savings Account (ISA)
Investing platforms can offer some tax savings if you choose to invest in an Individual Savings Account . An Individual Savings Account (ISA) is a program available to residents of the United Kingdom and is a class of retail investment arrangements that qualify for a favorable tax status. While not a pension product, this offering can be a useful tool for retirement planning. Payments into the account must be made from after-tax income and the fund is exempt from income tax and capital gains tax on the investment returns. Additionally, no tax is payable on money withdrawn from the fund.
Choosing can boost your returns by reducing the amount of fees you will pay. When determining the ISA that is right for you, it’s important to consider both the service included in the ISA and the administration charges and transaction fees. Some ISA’s will carry other fees which are crucial for you to understand as well. Fewer fees mean more buying power and that can dramatically increase your ability to build your portfolio.
DIY investors can hold a variety of assets within their ISA. This is a major benefit of an ISA, but can complicate the process of picking a platform as charges vary based on what the investor chooses to hold in the ISA including directly traded stocks, corporate bonds, ETFs, managed funds, investment trusts and unit trusts. Fortunately, with the growth of investors and platforms, costs are diminishing and being made more transparent.
The Top Three Factors in Choosing a Platform
1. Resources: Consider the research tools the platform offers that may be most useful to your style of investing/trading.
2. Products: What investment vehicles are available through each platform and what are the differences in transaction costs for each type of product.
3. Charges: Considering only an administration fee or transactional charges may skew your decision. One must consider the sum of all charges to understand what the overall long term impact will be on his or her account. Consider dividend reinvestment charges, and regular dealing charges, admin fees, monthly investing discounts, transfer charges etc. in their entirety.
Keep in mind that while cost is a critical component of any investment strategy, the cheapest option may not necessarily work best for you. A smart investor will consider a combination of price products and service to find the platform that suits him or her best.