Best Discount Brokers
The discount brokerage business has changed dramatically in the past few years. Commissions have dropped, and now differ only in minor details among the largest firms. Virtually all discounters offer a broad suite of no-sales-load, no-transaction fee mutual funds. So how do you choose?
My answer might surprise you. Research. The quality of the stock research carried by discounters varies widely. Most firms — including Fidelity and Schwab among the biggies — scrimp on research. Yeah, of course, you can download piles of statistical reports from the broker’s website. Most of this stuff, though, is next to useless. It’s long on numbers and short (very short) on interpretation.
Good research takes a person, not a computer, to write it — and people are expensive. That’s why I favor the research offerings of both TD Ameritrade (AMTD) and Bank of America’s (BAC) discount arm, MerrillEdge. TDA gives you access to analyst reports from Credit Suisse (CS), one of the world’s leading investment banks, known for its in-depth research. As a TDA customer, I estimate I tap thousands of dollars’ worth of Credit Suisse reports every year. Meanwhile, I pay only a $6.95 commission for Internet-based stock trades — over 70% less than I used to pay a live broker 38 years ago!
MerrillEdge lets you unlock the riches of the vast Merrill Lynch research staff, while paying discount commissions. In fact, if you keep $25,000 or more on deposit with Bank of America, you can make up to 30 trades per month commission-free. I’ve found that the value of the Merrill Lynch research easily outweighs the low yields I earn on my Bank of America deposits. It’s a kind of bonus interest paid in kind — and tax-free at that.
Best Life Insurance
I believe in only one kind of life insurance: term insurance. Pure protection. If you die while you’re paying premiums, your heirs collect the death benefit. If you live, the insurance company keeps what you paid. Simple. “Whole life” and its variants, with their investment side-accounts, carry built-in costs that make it difficult to earn a reasonable return on your money.
I generally recommend buying term with a level premium for 10 or even — if you’re age 30 or less — 20 years. That way, the insurance company has to eat any unexpected increases in its operating costs during the term of your policy. Also, do business only with financially sound insurers, preferably those rated double-A or higher by Moody’s or Standard & Poor’s.
My favorite source for cheap term these days is MetLife (MET). A 40-year-old male, nonsmoker, can buy $500,000 worth of coverage for just $35 per month, level for 10 years. For a female, the rate is even lower — $30 per month.
Get rid of your life insurance once your investment portfolio is big enough to support you and any dependents for the rest of your collective lives. I don’t maintain any life policies now. When my kids were in high school and college, however, I had enough coverage to meet 10 to 12 years of living expenses — and we always slept easy.