The Best Tools for Investing, Stock Trading with Dan Burrows

At Kiplinger, we provide guidance on what stocks, mutual funds, and other investments to buy and to avoid. But once a year, we also take a look at the tools we use to trade those investments. Investing writer Dan Burroughs joins us to look at the best brokers and platforms for you, whether you're buy-and-hold or an active trader. Also, some news about, well, us. Take a look around. Welcome to Your Money's Worth. I'm Kiplinger.com Senior Editor David Mulbaum, joined by my co-host, Senior Editor Sandy Block. How are you doing, Sandy? I'm okay. Notably, Sandy is not doing great. No, not really, because, well, let's just get the bad news out of the way. This is going to be the last Your Money's Worth, David, and I do for a while. We're taking a pause, a hiatus, it's going to be a few months. Yeah, right. Now, no guarantees, but as of now, we are planning for Kiplinger to make a return to podcasting, but it's far too early to say what that would look like, but we're not turning off all the lights on the content that we've created over the years, these 160 or so episodes. If you missed one, check out our back catalog. We've got some decidedly evergreen content in there about, say, target date funds, paying for college annuities, so while in many episodes, we've tried to stay on the news, a good chunk of our guidance, I'm happy to say it holds up pretty well. Yeah, it does. As I understand how these podcasting platforms work, if and when Kiplinger gets back in the pod space, we can let Your Money's Worth subscribers know that we're back in some shape or form via alerts. People may be getting through their podcast players. Right. So even if it's not Your Money's Worth, per se, we can still keep this alive and ping people say, look here, look there, look, you know, anyway, we're not gone. But you know, since you mentioned the subscribers, we should say thank you to all the people who subscribed, downloaded and played Your Money's Worth and responded to us and sent us pitches, even when we made fun of silly press releases and our guests, both those who work or work to your Kiplinger and the outsiders, we cajoled into putting on headphones and talking to us. And we'd also like friends and family who talked us up on social media and had to retreat to another room so we didn't have background noise on our recordings. And all the dogs we had to lock up and all the leaf blowers we complained about. And I'd like to thank all the little people, as they say at the Oscars. I love you, brother. I love you, man. I think the orchestra is starting to play you out, David. Right. But there is going to be a main segment and we are going to give it one last go. So when we return, we will be talking with Kiplinger and contributing investing writer Dan Burroughs about investing platforms. Basically, who's the best online broker for your style of investing from whether you're a set-and-forget guy or an active trader? So stick around and thank you. Lately, it's hard to ignore the role of energy in our everyday lives. From healthcare to supply chains to our daily commute, our communities and economies call for resilient, reliable energy systems. Building the energy networks of the future takes long-term vision with near-term results and SEMPRA aims to be an energy leader that delivers both. SEMPRA.com/investors to learn more. Welcome back to your money's worth. Today, for our swan song, we are joined by Dan Burroughs, who is a contributing investing writer for Kiplinger and has been covering the markets and stocks and related topics well before podcasting was a thing, possibly even back when a stockbroker was someone you called on the phone and asked to buy or sell something. And he's worked for publications as diverse as women's wear daily and spy. So he's funny too, which helps. Welcome to your money's worth, Dan. Hi, hello. Thanks for having me. Thanks for joining us, Dan. And because it's our last episode for a while and I'm feeling punchy, I just want to note that I think we've crossed a new threshold today and that Dan appears to be recording from inside his car. That's right. But I'm not driving. I'm sitting in my carport. It's just that the house is pretty full of very noisy visitors today. So this is my sound studio. It works. It works. And Dan really likes his car. It's a duster, not a Plymouth duster. For people who remember those from the 1970s, it's a Renault duster, which is interesting. It's like some sort of reflection of the mixed up world of the auto industry today. So as Dan was telling me, it's designed in Romania, assembled in Columbia, and it has a French car maker's badge. And this is in part to point out that Dan is not only joining us from his car. His car is in Medellin, Columbia. This is also a first to guests in South America. That's true. And I'm very honored to have that distinction. But you know, thanks to this brave new world, I'm still watching when the market opens and the market closes, just like when I was up in El Norte. Cool. Cool. Well, having established your bonafide, this is a market watcher. We're going to move a bit sideways. So you write a lot of stories for Kiplinger about how stocks are doing, which stocks are doing well, which aren't market trends, all that good tick or centric stuff. But today, in part because we want to give people a reasonably evergreen episode on our way out, we're not going to do this stock or that stock. Instead, we want to talk about the tools people use to invest, online brokers, trading platforms. Kiplinger reviews these every year. Our latest take is available online. And I will, of course, include a link actually links plural, because this year we broke these into two parts, the big guys, e-trade, fidelity, Charles Schwab, and then the little guys, the upstarts. They got a look too. Outfits like Robin Hood, which I'm sure everyone has heard of, but also Sofi, Betterment, MooMoo. MooMoo, like the Hawaiian dress? No, like, what does the cow say? M-O-O, M-O-O, M-O-O, yes. But Dan, I wanted to get back in part of all things your bio, because at the bottom of your bio on Kiplinger.com, you have this fairly interesting line, which is basically saying, "Yeah, I don't trade." The best advice is to buy stocks and hold them. And that is advice that people have heard elsewhere from Kiplinger and here on Your Money's Worth too. On the other hand, as we've also discussed on Your Money's Worth, for a lot of people, trading isn't just profitable. It's fun. So talk us through a little of that dynamic. How can you have your cake and eat it too? And maybe we'll bring that back to, when it comes to picking an online trading platform, you have to think about what am I trying to do with it. Yeah, that's critical. I'm the wet blanket. The thing is, as we all know, in any given period, something like 85% of active managers fail to beat their benchmarks. And so these are the professionals we're talking about portfolio managers and their teams of co-portfolio managers and they have dedicated research staff on the buy side, helping them with their stock picks. And we know the data is clear that most of the time, they fail to beat their benchmarks. So if they can't do it, what do I know that they don't? And so I'm one of these boring guys who says, look, just dollar cost average into your cheap index funds and never look at your brokerage statement and be patient and let compounding do its work. And if you do that and hang around for several decades, you'll be OK. I know I'm the most boring thing ever. But a lot of people don't like to do that. And to be fair, that's absolutely no fun. And just because most pros can't beat the market persistently year after year, that doesn't mean individual investors can't have periods of outperformance or success. And also if they enjoy it by all means, it's your money. You should do what you want with it. Well, I think one of the things that our former colleague Kyle Woodley used to often say was that doing a little bit of this, maybe taking a flyer on a stock that looks interesting, is a good way to learn about how the markets work and how investing works. And as long as you're not betting the mortgage, maybe that's kind of a good thing. That is a great point. And I agree with that completely. As long as you don't invest, it's like anything, don't bet more than you can afford to lose. It's the same thing. Just be careful with the money that you're going to actively manage. And that's a terrific point. There's no better way to learn about this stuff than to actually dive in using one of the many really outstanding brokerage apps and offerings that we have today to learn how all this stuff works. The reason is the point of whether when we do rankings and we say this platform is best for this or better for this and this platform is better for that, and by this and that I'm referring to things like who has access to the best price on a stock trade, that sort of thing. Nonetheless, you as an individual investor, you don't have to put all your apples in that one basket. No one has to have a singular relationship with an online broker. They're not exclusive. So you absolutely could choose and choose to have some of your money with one platform or online broker and maybe for the more interesting stuff you want to try, Robin Hood, you can do that with your set aside more mad money concept if you will. Now, at the end, that's going to create some sort of administrative headaches for you just in terms of overall financial planning, but doesn't mean you can't do it. No, that's an excellent point. In a lot of ways, I mean, it's a cliche, but in so many ways, it's true. It's never been a better time to be a retail investor, and I mean, none of the brokerages that we look at are the big guys the smallest, none of them are duds. So you have tremendous choice out there, commission free trades, and some of them have features and offerings that others don't, and so it depends on what you're doing as an individual investor. But it's true, you could portion your capital among a few different brokerages depending on the services they offer, whether one has superior research or one has a better advisory model, and as long as you keep all your passwords and log in straight, that's actually a good problem to have. Dan makes a point about commission free trading, and I'm old enough, and I think maybe you guys are too, to remember a time when really the only way you could trade stocks, or maybe even mutual funds, was by going to a brokerage firm and paying them a big commission, and it really wasn't an option for people who didn't have a lot of money. Now, the entry fee is so low that, I mean, maybe that's a risk in that it might entice people to trade more than they should, but it certainly takes away a barrier from being an active investor if that's what you choose to do. That's right, and it also used to be very expensive to churn your portfolio. I mean, back in the day, we used to warn our readers all the time, don't churn your portfolio, because you're going to rack up fees and commissions, and that's going to hurt your returns, but that's sort of gone by the wayside. Clients can buy fractional shares now too, which is a really good development. To follow up a bit on that, Dan, in this era of no commissions, we still are trying to pay attention to the price, that is the price at which you get or sell the stock, because there is some variation there. Can you walk us through this much more difficult to understand landscape of that involves things like this acronym of NBBO, the National Best Bid and Offer Price? It's confusing. When we understood, oh, $10 per trade, we're like, okay, got that, and now we're like, no dollars per trade, but yeah. Somebody's getting paid. Yeah, exactly, but really a bunch of finance, this new research report came out, a bunch of finance professors looked into this like a month ago, and they executed something like 85,000 trades, and their assumption going in was that the brokerages that used pay for per order flow like Robinhood, Citadel pays Robinhood a kickback for routing those orders to Citadel. Citadel's the market maker that actually buys and sells the stock. The assumption was that if you have a brokerage that pays for order flow, you would get worse execution, and they did all these trades, and at the end of it, some of them actually made money in all their trades, and some of them actually lost money in all their trades all based on execution, and it turned out it actually had nothing to do with pay per order flow. It was much more complicated than that. So yeah, so you didn't get penalized by Robinhood, it has more to do with who the market makers want to deal with. So Citadel loves to work with Robinhood because all those retail investors are generally considered to be less sophisticated, and so there's going to be a wider bid-ask spread on their orders, and so those trades are more profitable for Citadel. If a market maker goes and works with institutions and more savvy traders and pension funds and institutional investors, the trades aren't as profitable because the spread is more narrow. So the bottom line is that you don't have to worry about getting poor execution from a brokerage that uses pay per order flow revenue to subsidize its commission-free trades. That's the good news, and as we see in Kepleringer's piece, it's true that Schwab and some of these guys do offer better execution than others. Other than that, yeah, you do have to be careful, and also in terms of the losses that these guys incurred, you have to remember that this was cumulative after something like 85,000 trades, so it's not really going to affect most retail brokers because they're just not trading in that kind of crazy volume. I mean, this was an academic study. So to sum up, the good news is pay per order flow of Robinhood and actually give absolutely adequate execution, and it's actually sort of the institutional guys who have to be more leery of getting squeezed by their market makers, which is counterintuitive. Oh, that's interesting. So yeah, right. Not the little guy, the big guys. Yeah. It's good news for the little guy. Yes. Right. Do you think there's a fundament, looking at the, I'm not sure I want to wait into the past year and a half of Robinhood, but looking at some of these, shall we call them upstart platforms, some of them have been through some fire. Is there any fundamental reason not to give them a try? The only my criticism really is just that they gamify the experience and I think that can be dangerous. I think that's the real knock on them. I mean, they're taking all these things that we've learned from social media and dopamine hits and positive feedback and stuff like that to get people to interact with their brokerage apps as if they're games or social media sites like Twitter or something like that. I don't think that's, you know, the best invest, you don't invest well when you get emotional about things. Right. So if you're gamifying the experience, you're making it emotional and that might not be to your benefit. Well, I'd like to follow up on that, Dan, because we had like a very volatile year in the markets and given that there really is no friction anymore, you know, between doesn't cost you anything to trade, do you think there's a risk? Is it easier to kind of panic and sell on a very bad day when you're using these kind of platforms and you can just basically go to your phone than in the old days when you had to place a call to your broker and it would cost you a commission to do that every time you decided to bail out of the market? Yes. Yes. Absolutely. That's a great point. No question about it. Yeah. Any time you should not trade emotionally, you shouldn't do any of this stuff impulsively and you put it perfectly. It's frictionless and it's free and it's an app on your phone in your pocket and yeah, you're probably going to be buying and selling without thinking it through and that's just never a recipe for success, not with stocks. So first of all, in this conversation, I remember that we have an article called How Does a Stock Trade Actually Work? And I'm going to pop a link into our show notes for that because if you're wondering what all that pay for order flow conversation was about and I don't blame you, this helps explain that and some of the underlying issues that happen when you click buy or sell. There's a lot that goes on behind the scenes and it's a really good explainer of the plumbing behind the scenes. I want to stop though for a second. We review the best online brokers and trading platforms and like I said, there's also going to be a link to that and my reading who did best in this or that or the other thing, honest to God, that's not what podcasts are for. You should go look at the link. Nonetheless, I am going to take a second to look at our results and just give a few shoutouts here to what some of the top brokers did well. And so first of all, in the rankings, number one this year, 2022 was eTrade. Number two, Fidelity. Number three, Charles Schwab and these guys are all pretty close up at the top and I think each one of them has been a winner in previous years. So you know, the big the big the big batters. So let's look a little take a moment to see what each of those did really well. And for eTrade, they were number one for their mobile app, their tools and their research for Fidelity, which came in number two overall, number one for their investment choices, basically the breadth of things that you can invest in how many ETFs do they offer, how many mutual funds, how deep do they go with foreign stocks, that sort of thing. They're also very good with their advisory services, basically like if you want some hand holding, they're there for you. And looking at Charles Schwab, number three overall, and therefore not as many number one rankings, but Charles Schwab was first for user experience, which is as we evaluated basically just like, you get on the website, how does it work for you? They're looking top of that. Anyway, there's lots more detail about that in the link to our best online brokers and trading platforms. And of course, we took a lighter look at the the the upstarts as I've been referring to them, Robin Hood and Betterman, and we'll link to that as well. But Dan, I was hoping you could just chime in a little bit of thoughts about your experience with any or all of those. Sure. One thing that I really like is when a brokerage offers first rate advisory services. And maybe that sometimes goes unnoticed. People like maybe like the investment choices or the research, but the thing about advisory services is they can really help you with some of the aspects of investing. If you're, you know, handling your own portfolio, there's such a chore, for example, rebalancing and tax loss harvesting, like, you know, those are not fun or necessarily simple. And it's great to have someone who is an expert in those fields help you out, especially portfolio rebalancing, because it's kind of counterintuitive. You know, portfolio rebalancing requires that you sell your winners. And this is hard to do, you know, you have a stock, maybe you want to make sure nothing in your portfolio is more than, I don't know, has more than a 3% waiting. And suddenly something's gone gangbusters, and now it's 10% of your portfolio. And you have to, if you know, if you're going to stick to your plan, you actually have to pair that position back. And that's awfully hard to do. So sometimes it's nice not only to have someone to, you know, help you with the math, but to help you pull the trigger. Yeah, help me pat you on the back, say good job. Yeah, it's hard, you know, killing your babies. Yeah. Right. And it's also interesting because those are the more subtle aspects of both of personal finance management and investing management, and of evaluating those platforms. Let me put it this way. It was a lot easier when someone said, we'll trade stocks for $10. And then the other one said, we'll trade stocks for $6. And anyway, but that's the kind of detail that we do dig into. And we've got some good guidance for you. And so thanks for giving us some insights into it. And of course, investing overall. And Dan, your car has worked wonders for me. Thank you. Yeah, I love, I'm a big fan of the Dasha Duster, you know, it's don't tell anybody it's secretly, it's secretly Romanian, but it says it's French. And that's what I'm going with. If your money's worth does make a return, the few near future will be in car studio record. Thanks again for joining us, Dan. We'll see you next time. Bye, Dan. Thank you. Thank you so much. 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Building the energy networks of the future takes long-term vision with near-term results, and SEMPRA aims to be an energy leader that delivers both. Visit SEMPRA.com/investors to learn more.