This article will look at the best online brokers to invest your money for retirement. As someone who is both an investor and a retiree who has written about personal finance since 2009, this topic is important to me.
The average investors should allocate roughly 80% of their investable assets into low-cost ETFs and index funds. Time in the market and continuous dollar cost averaging are much more important than trying to pick the next hot stock.
I've worked in the Equities department of two major Wall Street banks since 1999, and I've seen three boom and bust cycles. The people who got taken out on a stretcher were the ones who bought stock on margin and panic sold. The people who are now seeing record high portfolio values are those who stuck with investing for the long term.
For the rest of the 20%, you can try to invest in actively run mutual funds and pick stocks. Picking home run stocks is the only way to really outperform. Just know that the long-term track record of outperformance is not very good.
When I was 22, I bet almost my entire liquid savings at the time on a stock called VCSY. Within six months, my position went from $3,100 to almost $200,000 due to the craziness for internet stocks at the time.
I sold the stock at around $150,000 and parlayed the proceeds into a downpayment for a $580,000 property in San Francisco a couple years later that is now worth $1,200,000.
By the age of 28, I became a millionaire due to aggressive savings and investing. Now at the age of 40, I'm worth over $10,000,000 and earn roughly $250,000 a year in passive income. You can't get wealthy by just being a scrooge. You've got to own assets that appreciate over time!
Best Online Brokers To Invest Your Money
The best online brokerages are rated based on the following criteria:
- Ease Of Use
Here are the best online brokerages, which include digital wealth advisors.
Betterment: The Original Robo-Advisor
Based in the New York City, Betterment is one of the original robo-advisor and launched in 2011.
Betterment invests in a portfolio of passive index-tracking equity and fixed income exchange-traded funds (ETFs) to help build your retirement nest egg.
Too many people are cashed up because they either don’t know what to invest in or feel the cost of investing is just way too high. Betterment is solving both problems. Betterment offers both taxable and tax-advantaged investment accounts, including traditional and Roth individual retirement accounts (IRAs).
Betterment’s core portfolio optimization incorporates insights of Modern Portfolio Theory, the Black-Litterman model, and Behavioral Asset Management. Modern Portfolio Theory (MPT) relies on diversification and asset allocation to attempt maximum portfolio return for an amount of given risk.
Below is a snapshot of what your account might look like if you invest with Betterment.
Account Types Available To Open With Betterment
- Traditional IRA
- Roth IRA
- Rollover IRA
- SEP IRA
Key Betterment Features
- Tax-loss harvesting – to help you reduce your taxable income
- Automatic Portfolio Rebalancing – so your asset allocation is always congruent with your risk tolerance –
- Automatic Deposits – Weekly, Every Other Week, Monthly
- Android and iOS Mobile App – you can always check your portfolio on the go
- Customer Service M – F, 6am – 5pm PST
- RetireGuide Calculator – to help you plan for your future retirement money needs.
- Tax-Coordinated Portfolio – to help you reduce your tax liability
- Custom Asset Allocation — Based upon your risk profile and account type (taxable vs. tax-deferred), the asset allocation is customized.
- SmartDeposit — You can automatically make deposits if your bank balance goes over a specified amount.
- Tax-Coordinated Portfolio — Asset-allocate your investments to maximize the tax efficiency between your tax-deferred and taxable accounts held at Betterment.
- Two-Factor Authentication — Secure your account via SMS text or an authenticator app on your smartphone.
- App Passwords — This allows personal financial services such as Mint, Personal Capital or TurboTax to a read-only view of your financial information without giving away your master password.
- Socially Responsible Investing Portfolio — Investing not only can help you make money but can also make a difference. Betterment offers Social Responsible Investing (SRI) ETFs to achieve your goals and make the world a better place.
- BlackRock Target Income Portfolio (New) — This portfolio is designed for those in retirement or investors wanting a low-risk portfolio. The portfolio is 100% composed of bonds to give investors income with low risk.
- Goldman Sachs Smart Beta Portfolio (New) — Competing with Schwab, Betterment now also implements Smart Beta with this portfolio in the hopes of improving returns over using traditional indexing.
- Talk to Financial Expert via Betterment’s App (New) — Got a financial question? Just like texting a friend, you can send a message to a financial expert within the Betterment app. This unlimited feature is available to all Betterment customers.
- Charitable Giving (New) — Betterment allows customers to donate shares directly from their accounts to charities. This can save investors at tax time because they will avoid capital gains taxes on donated shares.
- Flexible Portfolios (New) — Available for investors with $100,000 or more in investible assets at Betterment, these portfolios allow you to customize your portfolio by adjusting your individual asset class weights. You’ll receive feedback from the Portfolio Analysis tool on your selections.
- Financial Advice Packages (New) — Betterment now offers individual advice packages that answer its customers’ most pressing financial questions. Packages are tailored to specific life events and include personalized action plans, educational content and one-on-one help from a certified financial planner or licensed financial expert.
- Smart Saver with Cash Analysis and Two-Way Sweep (New) — Earn returns projected to be 20% higher than your typical savings account. Smart Saver uses a portfolio comprised mostly of U.S. government bonds for these low-risk earnings. Plus, the Cash Analysis and Two-Way Sweep functionalities will identify extra cash in your checking account and sweep it into your Smart Saver account.
Betterment is designed so that you have access to a lot of automated options. And because the process is streamlined, it requires little day-to-day involvement. Compared to traditional investing options, it’s “set it and forget it.”
Read the full Betterment review here.
Personal Capital: Best FREE Financial Software
Personal Capital – Personal Capital has the best financial tools for investors and people who are the most serious about planning for a healthy retirement. You can easily x-ray your portfolio for excessive fees, get a snapshot of your asset allocation by portfolio, track your net worth and plan for your retirement. Personal Capital is free and should be used by all serious investors looking to retire comfortably.
Personal Capital is one of the best online brokers that has both an algorithmic and human component to money management. It is the best free wealth management around.
Read the full Personal Capital review here.
The middle class is falling behind because they are not saving enough, taking on too much debt, and not investing enough in stocks. Too much of middle class net worth is tied up in property too. I strongly recommend investors start diversifying their net worth and taking a balanced approach to investing in stocks, real estate, bonds, and risk-free assets like CDs.
Other Best Online Brokers
As for other best online brokers, I like TD Ameritrade, Charles Schwab, and E*Trade. All these platforms are excellent and have been around for more than a couple decades.
Online brokers no longer charge commission. They make their money from margin trading, which I don't recommend, and by earning a higher return on your cash balance.
The Proper Asset Allocation Of Stocks And Bonds By Age
The Recommended Net Worth Allocation By Age And Work Experience
About the Author: Sam has been investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out it by spending the next thirteen years after college working at Goldman Sachs and Credit Suisse Group. During this time Sam earned his MBA from UC Berkeley with a focus on finance and real estate.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites on the internet with over 1.5 million organic pageviews a month and growing. Financial Samurai has been featured in leading publications such as The Wall Street Journal, Bloomberg, and The LA Times.