Why you should be your own broker
- Mr.Arete
- Nov 20, 2021
- 5 min read
Here's the reality...
Every investor or trader needs a medium and platform for them to at the very least hold their shares. There are many brokerage platforms to choose from and along with it, many brokers who offer their services to people like us, at a "small" fee of course.
From all the real experiences and stories I gathered, engaging an external broker makes the most sense only in this 1 scenario: You have money and don't have time to manage it. Have money = minimally mid 6-figs. You are an individual who has already accumulated capital, and time is better spent on other pursuits other than managing your wealth.
If you started off with a couple thousand dollars like me, you are better off being your own broker.
I.e. managing your own finances. (how many times have I seen people who claim to help people manage money, only to see them with bad money habits).
Here are the solutions and why...
First, when you are your very own broker, you save a good amount of money on commissions, hidden fees and miscellaneous fees. I have seen and heard about it first hand - why do you think investment products are so highly pitched (even though we all know we have a higher probability of outperforming it in the long term by simply buying the S&P500?), it is because each year or each transaction, the broker/fund manager/"ABC" manager, takes a cut. I won't go into the details because I always like to focus on providing the solution; do your research... and brace yourself because you are opening a can of worms here. I have tried being in investment sales before and I am aware of the truth, but let's not get there.
Back to the reasons why you should be your own broker.
1. Financially it makes sense
We live in the post 2020 Covid era, you have no excuse to tell me that platform fees are high.
Example 1
Example 2
Think about it for a second. Say you wish to get started in investing, and you want to buy certain stocks like $BABA, $AAPL, or even $SPY if you are a passive investor. You hire a broker to do it for you. You can expect to pay hundreds / thousands of dollars aggregated over the span of a couple of years.
If you set up your own account and buy those shares directly yourself like an independent adult, total commissions paid = $0. This is the best way to minimize all the seemingly small fees which will add up over time, and the best way to maximize your return on investment.
End result: You still get to own the very shares you intended to buy anyway.
2. You can adapt quicker
You literally have the authority and ability to sell away your shares (or buy new ones) almost instantly through the brokerage platform. Heck, you can even do it from your mobile phone, while chilling out with friends sipping on magaritas on a Friday night at a bar. Or while on vacation at the beach, or while sipping coffee during lunch break.
Gone are the days where you have to call up your broker to tell him/her your intended change of action, wait for 3-5 working days, and pay them for doing it.
It's 1AM on a weekday night and you wish to execute a trade? No problem.
You wish to set a fixed price for buying or selling away shares by today? No problem.
You urgently have to liquidate all your positions and cash out? No problem.
3. You empower yourself
You build confidence in managing your own money, you give yourself the authority to take control and more importantly, it forces you to become independent because no one's going to be holding your hand all the time to help you (for free - the day you stop paying the broker is the day you are helpless). And no one likes the feeling helplessness.
Look, you're dealing with money. Your own hard earned money. By that logic, you should have a high level of control over what you do with it. Involving more parties complicates the situation; the more parties involved, the more it dilutes your control over your own finances.
You: "Hey [inserts broker's name], I'd like to cash out on my $BABA shares. I got in at $200 and its trading at $300 now, I'd like to take profit. How do I do it? Can you help me do it?"
Broker: "Hey bro, that would take awhile as we need to file some paper work and set some processes in place. Further to that, it'll incur $X fee for this transaction to happen. And speaking of selling, why do you want to sell $BABA now? You should hold longer blah blah blah..."
VERSUS
You: "Aite, I've made $100 per share on a $10,000 investment, time to cash out... let me see.. I originally bought 50 shares, so that works out to be $5,000 of profits. Nice. *clicks button to sell*."
Account went from $10,000 -> $15,000. Done.
You literally have all the freedom and knowledge to do whatever you want! One of the most frustrating feelings in the whole is not having the authority and freedom to act on something simply because we are not empowered to do it ourselves. Let me elaborate - it is a very different feeling well knowing you can actually cook an egg, but chose to hire someone to cook an egg for you (Category A) versus not actually knowing how to cook an egg and paying someone to do it for you (Category B).
Most people fall under the Category B. So now you need to learn how to cook an egg, transcend the ladder up to Category A.
If this makes sense to you so far, good. So the next step... What are the main obstacles?
I'll cut the chase and get straight to the point:
- Procrastination
- Laziness
Deep inside, most people probably already know the reasons. Mr Arete will be the harbinger of good advice disguised / misinterpreted by most as "bad/harsh news".
You are either a procrastinator, or you lazy af. There's literally no other reason why you would choose not to act on it. It takes 30 min max. Before you say anything to rebut - check how much time you spend scrolling mindlessly through social media/watching Netflix.
The goal of Mr Arete is to provide actual value and good advice to people. If you lazy, you lazy. Acknowledge it, get on it, fix it and move along. This is written with good intentions, not to play music to your ears. Many things seemingly sound good but are actually bad for you; many things seemingly sound harsh, but are actually good for you. I choose the latter any day. Only the truth can set you free.
Sit down in a quiet space, preferably alone. And get to work.
With the caveat on potential obstacles out of the way - here's a free step-by-step guide I have personally written to guide you through the account set up process. I'd suggest you to either use ThinkorSwim / Interactive Brokers. These are undoubtedly the best brokerage platforms out there in terms of commission structure, layout and view, accessibility (they have web/mobile/desktop app), and analytics (for you to run your own analysis in future). Most other platforms have much higher commission fee structure and shitty/non-existent analytics capabilities.
Note: this was written at the start of 2021. However, it is likely to still be highly relevant.
To green days,
Mr. Arete.
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