How to Use a Broker

In a world where anyone can trade stocks online for just a few dollars a trade, the broker seems to be an endangered species. But if you have a sizable amount of capital that you would like to invest, you should consider using a broker. After all, it's better to pay more money per trade and make the right trade than lose your shirt saving a couple bucks.

Instructions

Difficulty: Moderately Easy

1. Get references on the broker you are considering. Using a broker is really about being a good client. Ask the right questions and really make them prove to you that they are effective. Be sure to get at least 3 quality references and an audited track record. If a broker can't do that, run the other way.
2. Form a game plan with your stock broker. Investing in the market is different when you are in your 20s than it is when you are in your 50s. You most likely have more money and should take less risk as you approach retirement. Map out your goals with the broker.
3. Make sure they diversify. This means not putting all of your money in one sector of the market. Also make sure you diversify in other markets throughout the world. By spreading your allocations, you are minimizing risk as different markets, sectors and stocks rise and fall.
4. Deposit a consistent amount of money over time. If you have $100,000, don't put it in the market all at once. Make sure your broker buys your positions over time. If the stock is moving up, great, you've made money. If the stock is moving down, you can buy more of it and average in at a better price.
5. Realize that everyone has an agenda. Brokerage houses can control the price fluctuations of stocks to a degree because they are buying so much of it. Beware if your broker is pushing a stock "too hard." If the stock makes sense in your portfolio and you believe in the company, fine, but if it doesn't, it is OK to say no.
6. Do homework. While you pay your broker to make you money, no one will be a better minder of the shop than you. Take the time to learn the basics of investing, either through interviews or online. Then check up on the companies' quarterly results. Be sure they are making their numbers. If they miss, find out why they are missing. Give yourself a dedicated block of time a week, 1 to 2 hours, to read up on the companies you own.
7. Broaden your portfolio. The advantage to using a brokerage house is that they will guide you through the murky waters of investing in bonds and commodities. This is something that your average online brokerage house offers but doesn't specialize in. This also insulates your portfolio from market downturns.
8. Ask many questions. You are paying the broker a lot of money per trade. Don't be afraid to ask questions. When you go to the doctor's office, you usually interact and get to the truth of the situation, bad or good. That is the relationship you need to have with your stock broker.