Picking Among Investment Companies: A Primer

If you save money for retirement primarily through a workplace 401k, your choice of investment companies is likely limited.

However, if you put money into a separate Roth IRA account or roll over into a personal IRA, well, it’s wide open. And that’s where the problems begin.

Wall Street firms know you have questions, so they quite cleverly market to very different segments of the investing public: slow-and-steady saver, hot-dog day traders and everyone in-between.

So which investment companies are best? It’s really a personality-type question, but here’s a good way to get started.

1. Where do your friends invest?

One good indicator of the likely “correct” answer is to poll your peers. If you travel in a country club atmosphere and have mostly rich friends, they offer a pool of experiences, both good and bad, from which to draw. Use your network to learn.

If you’re just starting out, ask anyway. Your smarter, more forward-learning friends probably know a lot from their own research of investment companies. Quiz them over drinks.

2. Do you value 24/7 access?

Most investment companies these days have pretty good online access, mobile apps, call centers and the like. If you expect to trade often or after-hours, be sure what they offer is up to your standards.

If not, then even a basic web presence might be enough to keep you comfortable with your money. Test a variety of sites before committing long term. Moving and retitling money can be a pain.

3. Do you need an office and a face?

Lots of investment companies have a big Wall Street presence but limited personal contact beyond a few wealthy zip codes. Others are on every street corner and even knock on doors to drum up business.

Both of these approaches represent an investment cost which is passed, inevitably, on to you. Be sure to buy enough contact, but do not overpay for bricks-and-mortar offices that you might not need.

4. What about banking services?

A lot of investors are perfectly happy to bank in one place and invest in another. Some want one-stop-shopping. The “financial supermarket” approach has been a mixed bag as  a business model but it’s worth considering the hassle of keeping things separated, such as money transfer concerns.

On the other hand, you might find a great bank that lacks trading desk depth, or a trading operation that offers banking services short of your real needs. It’s a balancing act.

5. What are the costs?

Finally, be very, very careful about the ongoing costs of the relationship. If you are charged per trade, what are those commissions going to be? If you must pay annual account fees, are they in line with your actual investing profile?

Costs are a retirement killer, so minimize them whenever you can.