Discount Brokers for Long-Term Investing: Comparing Fidelity and TD Ameritrade

By Markets Fool.com

If you're looking to buy stocks online, the first step is to figure out how you want to invest. Once you're there (and have saved enough money to start investing), the next step is to pick a stock broker and open an account. The online discount stock brokers are a great place to start, given their low fees and availability. Fidelity and TD Ameritrade are both well-known discount brokers, so here's some information that will be useful to long-term investors considering opening an account with either.

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Trading costs

It's closebecause Fidelity and TD Ameritrade are both cheap and offer a number of free options for investors.).

Stocks/Options ETFs Mutual Funds
Fidelity $7.95 per trade + $0.75 per options contract $7.95 per trade $49.95 per purchase
TD Ameritrade $9.99 per trade + $0.75 per options contract $9.99 per trade $49.95 per purchase

Source: Company websites.

Of course, costs are often reduced by special offers (free trades, for example), which are often available for new brokerage clients meeting certain requirements. You can learn more about brokerage special offers and IRA account special offers, if that's what you're seeking.

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Trade execution quality

When buying an equity, most people want their order filled quickly and at below market price, if possible.

There is no industry-standard definition for trade execution quality, so I'm using a combination of percentage of shares that achieved price improvement and execution speed.

% of Shares Achieving Price Improvement Execution Speed
Fidelity 91.2% 0.1 seconds
TD Ameritrade 99% 0.09 seconds

Source: Company websites.

Both TD Ameritrade and Fidelity report "price improvement", which involves comparing the trade execution price to the National Best Offer for buy orders and the National Best Bid for sell orders. That number is then multiplied by the number of shares that were traded.

Fidelity and TD Ameritrade's price improvement numbers are not directly comparable.

Account minimum

TD Ameritrade has no minimum balance to open an account. Fidelity, by contrast, has a $2,500 account minimum for brokerage and IRA accounts. Now, TD Ameritrade will only consider opening your account to margin and options trades with a minimum account balance of $2,000.

Commission-free funds

Both TD Ameritrade and Fidelity offer dozens of commission-free funds (ETFs, mutual funds, you name it). Both Fidelity and TD Ameritrade give investors plenty of opportunities to invest commission-free. TD Ameritrade offers more commission-free ETFs -- 101 vs. 90 -- while Fidelity offers more free iShares funds (70 vs 47) than TD Ameritrade. Either of those may be a differentiator for you depending on your investing preferences, but both should be plenty for many long-term investors.

Exposure to international stocks is an often overlooked part of your brokerage choice. Image source: Getty Images.

International stock trading

Fidelity offers the ability to purchase stocks on 25 foreign exchanges, giving investors looking for international exposure a broad set of individual stocks that they can pursue (in addition to international-focused ETFs, which both TD Ameritrade and Fidelity offer). TD Ameritrade, by contrast, only offers investments in American depositary receipts (or ADRs). Some foreign stocks trade on US exchanges using ADRs, but the exposure is more limited given that investors can only purchase stocks that have set up ADRs.

Trading platform

Here at The Motley Fool, we don't care much about the quality of the trading platform -- because, frankly, as buy-and-hold investors, we don't believe in trading stocks that frequently. If you've bought a great business that can deliver long-term success, you don't want to leave that position -- so you won't need a super intuitive platform given that you'll be buying and selling pretty rarely.

Whether the trading platform better suits your style is largely a personal choice; both offer plenty of functionality.

Make sure you get great research from your broker. Image source: Getty Images.

Research quality

Generally speaking, do-it-yourself long-term investors are best served by a wealth of data and resources. And Fidelity and TD Ameritrade both deliver. With either, you'd have access to stock and fund screeners, news resources (like MarketWatch), and a number of independent research providers (both have Thomson Reuters access, for example).Both firms offer lots of proprietary research and reports, and access to outside providers too. And don't forget the educational videos and articles, which can help beginning investors learn the ropes and build a great investing process in a supportive environment. Truly, depending on your needs, either TD or Fidelity could be a great fit.

Mobile app

Here's how users rated Fidelity and TD Ameritrade's apps for iOS and Android (as of 11/10/2016).

Apple App Store Android Store
Fidelity 4 stars 4.5 stars
TD Ameritrade 4.5 stars 3.5 stars

Source: Relevant app stores.

Here's what it comes down to

For long-term investors, both of these brokerages have plenty to offer -- low commissions, lots of commission-free options, plenty of research, and lots of educational resources. And to be clear: The Motley Fool does not endorse any particular broker. Learn more about brokers (or open a brokerage account) at Fool.com's broker center.

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