Before you can start investing in stocks or funds, you'll need to open a brokerage account to start placing your trades. But with so many brokers out there to choose from, and so many features on which to compare them, selecting the best brokerage can be a chore.
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We'll simplify it today by looking at just two popular brokerages, Capital One and Interactive Brokers, to compare them on criteria that long-term investors should care about most.
Trading costs and commissions
No matter which broker you ultimately choose, you'll find that trading costs are very affordable. In general, prices tend to vary only by a few dollars, which makes price just one of many factors to consider when selecting a brokerage account. Here's how these two brokers compare on the basis of trading costs by type of investment.
Source: Company websites.
Importantly, both brokers have ways to reduce your trading costs. Interactive Brokers' "tiered" commission schedule promises lower commissions to its clients. Capital One offers services called Sharebuilder and PortfolioBuilder, which enable you to make trades that are not time sensitive in individual stocks and whole portfolios of stocks for just $3.95 and $18.95, respectively, per trade.
This is just scratching the surface, though. Both brokers offer funds you can invest in for free, and frequently provide special offers for opening an account that include extra features, commission-free trades, or cash bonuses for opening an account.
Commission-free ETFs and NTF Funds
If funds are your forte, Interactive Brokers and Capital One may win you over with commission-free ETFs and no-transaction-fee (NTF) mutual funds. These fee-free funds can save you a fortune in transaction costs, as you won't pay a fee to your broker to buy or sell funds on these lists.
Source: Company websites.
Realistically, you'll probably invest in just a handful of funds rather than, say, 400 different mutual funds, so fund investors should check their ETF or mutual fund "wants" against the fee-free funds listed by each brokerage. If a broker doesn't offer exactly the fund you want, there are usually some alternatives that are similarly invested and carry similar expenses.
Like many brokerages, Capital One is a no-minimum brokerage, which means you can open an account by depositing just $1 if you wanted to do so. Interactive Brokers requires a minimum deposit of $10,000 for standard accounts, $5,000 for IRAs, and $3,000 from investors who are 25 years old or younger.
Depending on how much you have to invest, these numbers may mean very little to you. But if you're just starting out and want to slowly build up an account from a standing start, you'll probably find Capital One to be more accessible than Interactive Brokers, given the differences here.
If you can commit to making a large initial deposit, or transferring a large account to a new brokerage, you may be able to cash in. Make sure to see if you can qualify for a bonus when you open a new brokerage account.
As long-term investors, we at The Motley Fool don't have particularly strong opinions about trading platforms. After all, we prefer to buy and hold our investments for long periods of time, which is almost the complete opposite strategy that trading platforms are built for.
Both Interactive Brokers and Capital One make placing a trade as simple as a few clicks and keystrokes, which fits the most basic needs of a long-term investor. However, if platforms or software differences are important to you, it's worth some personal investigation. The truth is that preference for a platform is subjective to the user, and everyone has a different opinion of what the "best" platform is.
Both brokers have mobile trading apps so you can place trades from anywhere with a smartphone or tablet. Image source: Getty Images.
International stocks and ADRs
Most would agree that a balanced portfolio includes investments in foreign countries, but depending on the brokerage, how you get there may be different. We've summarized the differences between Interactive Brokers and Capital One in the table below, which shows the investments that are available at each brokerage.
Source: Company websites.
If you invest in foreign stocks through ETFs or mutual funds, you won't notice a real difference between these two brokerages. There are plenty of ETFs and mutual funds to choose from that hold foreign stocks from countries all around the world. Similarly, you can also invest in individual companies by purchasing ADRs, which are roughly equivalent to shares of a foreign company, that trade on American exchanges.
Investors who want to send trades off to foreign markets have fewer choices, as only a handful of brokers offer international investments. Capital One doesn't currently offer trading on international exchanges. Interactive Brokers offers trading on more than 100 global markets, from the well-known and nearby Toronto Stock Exchange to the distant Bolsa de Madrid in Spain.
Depending on whether you intend to invest in foreign securities and how you plan to do it (individual stocks or funds), either brokerage may fit your personal investing style.
Research quality and tools
In general, we tend to think that investors can benefit from having access to research and investment tools provided by their brokers. Interactive Brokers offers a number of screening tools, plus analyst upgrades and downgrades, digests of daily news, analyst ratings history, and news from the wires. Capital One offers a back-end powered by Morningstar data that makes it easy to compare stocks and funds quantitatively, plus screening tools and news from a number of sources.
Admittedly, we've just covered a few of the research perks offered by both brokers. Depending on your needs, you'll find plenty to like about what either company has to offer in the research department.
Mobile app reviews
Customers of both brokerages give their brokers fairly high scores for their mobile trading apps. Here's how users and clients of each broker rated their iOS and Android apps (as of 1/04/2017).
Source: Relevant app stores.
The better brokerage: Interactive Brokers or Capital One?
Realistically, either broker could be a good choice for you. Interactive Brokers offers bottom-barrel commission prices and vast international investment choices, but its minimum initial deposits may be inaccessible for some investors. Capital One has some attractive features like PortfolioBuilder for constructing a diversified portfolio inexpensively, and some may prefer its no-minimum deposit requirement, but it doesn't have as many fee-free funds or international investment choices.
The point is that every brokerage has its pluses and minuses. What's most important is how the line-up of features compares to how you manage your portfolio. To be clear: The Motley Fool doesn't endorse any particular broker, but we can help you compare brokerages to find one that works for you. Visit Fool.com's Broker Center for a comparison of features and special offers for traditional brokerage accounts. The Fool.com IRA Center is specifically designed with the retirement saver in mind.
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