Do You Need A Broker? - Black Enterprise

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Black Enterprise Magazine July/August 2018 Issue

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Once your club decides on its basic investment objectives, it’s time to decide if you’ll need a broker. Brokers come in two flavors: full- service and discount brokerage houses. Full-service brokers, such as Merrill Lynch and Dean Witter Reynolds, offer advice on which stocks to buy and sell, and provide investment resources. Discount brokers, such as Charles Schwab, essentially offer do-it-yourself investing; they don’t make stock recommendations or provide analyst reports.

While you won’t get any hand-holding from a discount broker, they are cheaper than a full-service one. Full-service brokers charge commissions ranging from 1.5%-3% per trade–that’s $30 off the top of a $1,000 investment. However, the larger the investment, the smaller the commission. Discount brokers, though, will apply the same fixed fee every time you purchase stock. These firms may charge anywhere from $19- $40 per trade.

Since its beginning 10 years ago, the Unity Investment Partnership in New York City has purchased stocks through Charles Schwab. “Since we were evaluating the stocks ourselves, we felt we didn’t need to use a full-service broker,” explains Unity’s President and co-founder Lillian Heard.

While the dub has an education committee that produces stock reports, any member can make an investment presentation. The club’s stock portfolio, valued at $90,000, features some 16 holdings, including Pfizer, Pepsi-Cola, the Wait Disney Co., Colgate-Palmolive, BET Holdings and American Power Conversion Corp.

“We used to think you had to have thousands of dollars to invest in stocks,” says Heard. “But we are each putting in $35 a month to buy stocks.” All but one of the founding members are still with the club. Many of them, like Heard, who formerly worked with the Department of Social Services, are retired and are investing to create a nice nest egg.

Once you begin investing in blocks (shares of 100), the discount on commissions becomes more significant, explains Thomas E. O’Hara, chairman of the National Association of Investors Corp. (NAIC) in Madison Heights, Michigan. Minimum commissions are often the same for discount and full-service brokers, he adds.

Some dubs sidestep brokers altogether and invest entirely through NAIC’s Low Cost Investment Plan. Clubs start out with a single share of the stock they want to buy, paying NAIC’s one-time sign-on fee of $7. The first share is purchased from NAIC. Thereafter, groups must deal directly with the individual companies or their agents, including blue chips like Kellogg, Quaker Oats, Motorola, Mobil and Upjohn. The downside is that you can invest in only a limited number of companies through NAIC.

In addition, more than 1,000 companies allow investors to buy single company shares through dividend reinvestment plans (DRIPS). Rather than paying out dividends, DRIPS automatically reinvest your stock dividends to purchase more company shares. Even better, many companies offer discounted shares through DRIPS, taking 3%-5% off a stock’s trading price.

If you have the time and discipline to research and follow stocks, then your club could get by using a discount broker, says Simone A. Thompson, account executive in investments with Dean Witter Reynolds in New

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