Should I Use a Broker?

Brokers, like, in Boiler Room?

Before we answer the question, “should I use a broker to buy and sell stocks?” we should distinguish what, exactly, we expect a broker to do:

  • All brokers are legally permitted to buy and sell stocksbonds and other securities, like derivatives and commodities, on a stock exchange on behalf of a client.

Many brokers perform additional services (and if you’ve ever watched a movie featuring stock brokers, this is likely what they were doing):

  • Many brokers advise clients on which stocks and bonds to buy and sell, how much, and when
  • Some brokers provide additional financial services or recommendations, like asset allocation, estate planning, the tax impacts of certain investments, and even small business or real estate investment ideas. Such an individual might have an additional certification, like the Certified Financial Planner designation.

From the comfort of your own home

If all you want to do is to find someone to carry out an order as you execute it — to make a specific stock purchase for you when you decide the time is right — then you do need a broker (someone who, by virtue of having passed the Series 7 examination, is legally permitted to buy and sell stocks and bonds). But you don’t actually need to have a personal broker; a person to whom you talk. Online brokerage firms which let you type in stock symbols and quantities of shares and click, “buy,” will do just fine. You’ll typically pay far less for the service, and you won’t have someone’s advice mucking up your investing chi.

Would you hold my hand?

If you, conversely, have no idea either what stocks you might want to buy or how to go about creating a “portfolio,” or even only the vaguest idea what a portfolio is, you may be the perfect candidate for the sort of broker who calls you on the phone and says, “I want to see you in some GE stock pronto!” I speak from a very jaded perspective: my husband was once employed (until he couldn’t take the culture any longer) by a prototypical “boiler room” style brokerage. And so I can say this: you do not need a broker who has come to you through cold calls or by having been referred by an acquaintance. These individuals are, more often than not, being encouraged to sell certain stocks and are less likely to be making decisions based on your needs; especially if they call you up out of the blue insisting that you need to “get in on the ground floor” of some specific investment.

You need a broker working for a bland, low-pressure firm, a so-called “storefront” brokerage where you can walk in and sit down at someone’s desk and see that there’s no one yelling or putting your name on a white board. You’ve surely heard their names on TV commercials and seen them downtown; ask around your office or group of friends and find out if anyone else you know has a recommendation (my advice: steer clear of relatives of people you know; in my experience one has a far lower bar for relatives than for less emotionally connected service providers).

DIY investing

If I taught personal finance in high school, I would tell my students to experiment with do it yourself investing and hope that began a lifelong interest in the market. Most studies show that highly-paid investment advisers and mutual fund managers aren’t really much better at stock picking than random chance (if at all). In my opinion, it follows that you are the best one at picking stocks for you. If you read up on how to create a diverse portfolio, and how to (roughly) allocate assets, you will likely do a great job of picking out your own stocks. Maybe you are a coffee nut and you’ve found the next Starbucks. Maybe you’ve noticed a chain’s stores are run-down in your city and you decide against investing in that company’s stock. There are plenty of resources (like right here!) and it’s possible to find investing clubs just about everywhere, where you can DIY together.

You need a brokerage

It’s definitely the case (unless you yourself are a licensed stock broker) that, in order to invest in stocks and bonds, you need a brokerage. Whether it’s an impersonal online brokerage with which you only communicate by clicks and all-caps letters and numbers, or an office where you can walk in and shake someone’s hand, is a matter of personal preference. My own preference is to learn about stocks on my own and make decisions based on my values and financial situation. I am, after all, the one who knows me best.

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