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Educational Tips

How to Develop a Market Strategy and Choose an Online Trading Platform – Part 2

A week or so ago I posted part one of “How to Develop a Marketing Strategy and Choose an Online Broker.” There, I outlined five key points. However, there are more areas I would like to cover. Finally, I’m pleased to bring you the highly anticipated conclusion, part two. Without wasting any more time, let’s dive in shall we?

 

DRIP

Dividend Reinvestment Plans or DRIP, are one of my favorite things about investing. Especially since I am a dividend growth investor myself. DRIP means that the dividends a company pays you will automatically go toward the purchase of more stock in that company. By using DRIP, new share purchases are automatic on the day the dividend is received and will not charge you any trade fees for it. Some platforms allow you to DRIP in partial shares if you did not receive enough for a whole share. Other platforms will put your dividends into a pile and only allow you to purchase full shares when the capital becomes available. It is personal preference which method you choose if you are receiving dividends, but both are great and add value to the platform who offers them.

 

Research/ Tools

Many platforms offer their own research tools which aids in your market research. Granted you can find just about anything you are looking for somewhere on the internet, these tools add value to the given platform because the features are included just by having an account. I personally use Fidelity for some of my trading and they have a reputation as one of the best research platforms around. They provide tools like stock screener, IPO calendar, foreign trading (if your account is set up for it), currency trading, and also have their own analysts who rate stocks and funds. I find the stock screener especially helpful to filter down potential future stock purchases that meet the criteria I am looking for.

 

Promotion

Some brokers have a promotion when someone signs up for the first time and creates and account. It can be in the form of a cash value, a certain amount of free trades, or others. While not all platforms provide this, if you are going to sign up anyway, might as well try to get a little added bonus from it to help kick start your investments.

 

Simplicity

I consider simplicity in a few different ways. First, how difficult is the platform to trade on? Is it a huge process to add money into the account to trade with? Does it make trading over complicated especially for first time investors? Is the website user friendly and has minimal down time?

 

Secondly, do you already have an account set up with them? Some individuals receive a 401k through work and have no choice on the company that provides it. They must go through them because that is the deal their employer has set up to provide such a service. If you already have an account with a broker, it may be a good idea to just open up another account (IRA, taxable, ect.) with them for simplicity purposes so everything is all in one spot for you.

 

Type of Account

 When investing, it is important to put your money where it will do the most good and provide the best value or most benefits. The type of account you are using to invest in plays a big part on your long term strategy. Depending on your market strategy that will help decide what type of account to go with. There are a few different accounts that I like to call “tax shelters.” Each with their own different quarks.

 

For example, 401k is employer based and you contribute pre-tax income. While Roth IRAs are taxed up front but grows for years and you don’t pay taxes on the gains when you take them out at retirement age. Taxable accounts are obviously taxed on income (dividends, capital gains, etc). But are great if you have maxed out your tax sheltered accounts or are using them to live off of dividends before retirement. I won’t go too much into detail about types of accounts but that is the general idea and questions you should ask when you decide where to invest. Some platforms may not offer anything besides taxable accounts.

 

Record Keeping

This point ties into the last two of simplicity and type of account. Especially with taxable accounts, what happens when the year is over and you have to file your taxes? Do you have to manually keep track or your capital gains and losses or dividends collected? Well luckily you won’t have to. Most, if not all brokers, will give you a 1099 type form at the end of the year which shows all activity for the year so it is easy for you or your accountant to deal with at the end of the year. It will keep track of buys, sells, gain, loses, dividends, etc. Just double check that you broker offers this to make it easy on you when Uncle Sam comes knocking.

 

 

There you have it. A few thoughts and good questions to ask yourself to help create and implement a market strategy and choosing an online trading platform. Once you have this in place and actually dive into investing, the rest is easy. Hope this article gives some great insight and helps make the process easier and less stressful for any new investors looking to get started.

 

Did I miss anything in my overview? Did any other factors play a role when you choose a platform? Do you agree or disagree with any points? Do you have any other investing strategy you would like to share that works for you? If you have any questions feel free to email me at dividenddaze1@gmail.com and your comments are always welcome below.

 

6 Comments

  1. When I choose a broker, I have the following items I check
    1- does it takes care of all tax issues for me?
    2- How good is the mobile offering? I trade 90pct on a smartphone
    3-Are my markets covered?
    4- what is the cost per trade?

    1. I completely forgot about the mobile offering. I do all my trading on the computer so I didn’t occur to me that was another option. I didn’t cover international markets much either but it also deserves to be grouped into the list. Thank you for your comment.

  2. I’m a huge fan of DRIPs. I invest directly with companies through a transfer agent like Computershare. By doing so, I avoid brokerage fees. However, it’s important to note that there can be some fees with investing in drips but I choose to invest in the no-fee drips at the moment. I also don’t just invest through transfer agents. I also have a brokerage account as you’ve mentioned. So, folks have to find what works for them.

    You make some great points. Simplicity is important. So is record keeping. No one wants complexity during tax time so it’s important to understand the record keeping aspects of your investments. So, for example, I use Turbo Tax to do my taxes. I use Computershare because they are a partner with Turbo Tax. However, the transfer agent for Realty Income, which is a company I invest in, is Wells Fargo Shareowner Services. But Shareowner Services is not a partner with Turbo Tax and so if I were to use that transfer agent, it would be more work for me at tax time to figure things out. Now, all I have to do is import the data to Turbo Tax when I do my taxes and that makes things so simple. So, record keeping is very important.

    Great article again.

    1. Thanks for your input. DRIPs are a DGI investor’s best friend. I agree that tax time is stressful enough for most people. The tax software now is pretty nice where you can import files and/or it will remember what you had last year and ask you if there has been any changes. That way it saves you a lot of work and keystrokes. Especially if you have a long list of companies you own in your portfolio.

  3. Depending on how sophisticated of an investor that you are, you may also want to inquire about margin accounts and options trading. I personally used these two features to enhance my returns. However, I would not recommend the novice investor to start trading options with a margin account when they first started. It’s best to learn the ropes first, then venture into other areas after gaining a few years of investment experience.

    1. Learning is key. We all have to start somewhere so the first step is to make a goal and see what kind of investment strategy will work best to help get you there. I don’t personally trade options but I know a lot of our community members do in order to enhance income. So the types of trading you do just depends on your overall strategy you set up in the beginning. Thanks for the input.

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