Gaining broad exposure to the stock market and other financial assets via mutual funds remains a viable way for investors to build wealth. With the typical online stock broker today, learning about how to invest in mutual funds and use them to save for retirement or college is just a click away on your PC or smartphone.
Whether the mutual funds are run by portfolio managers who do the stock picking for you, or are index funds that track broad market gauges like the S&P 500 or sectors like health care, online stock brokers offer a raft of funds that provide risk-reducing diversification, often zero fees and an easy way to construct an investment portfolio. Professionally managed stock mutual funds, which own a basket of equities, often serve as a core holding. These can provide a solid foundation for investors who also buy and sell individual stocks and other investments.
So what are the best online stock brokers for mutual fund investors? IBD's annual Best Online Brokers survey reveals how investors judge their broker on key characteristics. You can use the information to further your knowledge on how to invest in mutual funds.
Over 1,200 investors who own mutual funds participated in our research. Each mutual fund investor rated their online stock broker on 14 attributes, such as customer service, web security, trade reliability, low commission and fees and research tools. We computed a Customer Experience Index score for each online stock broker, using the investors' evaluations. Based on the Customer Experience Index scores developed by IBD's longtime polling partner TechnoMetrica Market Intelligence, we identified the top brokers as rated by mutual fund investors.
IBD spoke with the three online stock brokers rated highest by mutual fund investors — Fidelity Investments, Charles Schwab (SCHW) and TD Ameritrade (AMTD) — to see what makes their digital fund platform receive such high marks.
Best Online Stock Broker: Fidelity Earns Top Ranking
Fidelity, the Boston-based mutual fund giant, earned a Customer Experience Index score of 74% — the highest among the four brokers that received sufficient number of responses from mutual investors to be ranked.
The centerpiece of Fidelity's mutual fund platform is its FundsNetwork, which offers access to over 10,500 mutual funds from hundreds of fund companies, including BlackRock, Gabelli, Oakmark and JPMorgan as well as Fidelity's own funds. A spin through Fidelity's website, which includes 295 of its own proprietary mutual funds, highlights investor-friendly offerings such as 3,651 funds with low transaction frees, Morningstar fund ratings, fund screening tools and 48 educational articles, videos and webinars in its Learning Center.
Fidelity experts also share their top fund picks and provide advice and templates on how to build a diversified fund portfolio. If paying fees make you fume, Fidelity recently rolled out four stock index funds that have zero expense ratios and zero minimum investment requirements.
"Mutual funds are still the vehicle of choice for customers to get access to broad market diversification," said Colby Penzone, head of investment product at Fidelity Investments. "Whether it's through Fidelity funds or thousands of no-transaction-fee funds, or through actively managed funds or passive index funds, we have a solution for every type of investor.
"One goal of the site is education," he added. "We want to make sure our clients, whether they're beginners or sophisticated investors, know the ins and outs and pros and cons of mutual funds and how they can help them meet their investment objectives. The second part is helping them decide what's the right product for (them). We have extensive research and screening and fund evaluation tools to help our clients find the right investments."
At the end of this year's first quarter, Fidelity had $1.23 trillion in retail assets invested in mutual funds, up more than 7% from a year ago.
With thousands of funds to choose from, Fidelity's most useful tools are those that help investors narrow down their choices. Every quarter "Fund Picks from Fidelity" provides a short list of recommended actively managed funds that have no transaction fees, have been around at least three years, meet certain minimum asset requirements and are open to new investors.
DIY investors who want to look under a fund's hood to see what drives it can turn to Fidelity's "Mutual Fund Evaluator," a nifty tool that filters, sorts and compares funds. Let's say you're looking to buy one of the 211 mutual funds tracked by Morningstar that invest in large U.S. growth stocks. You can narrow your search by limiting it to, say, no-transaction-fee funds only. You can refine your search further using dozens of more specific filters. You could limit your search to funds with at least a four-star Morningstar rating, expense ratios less than 1% and portfolios that are less risky than their peers. Once you've cut your list down, Fidelity has a "compare" tool that lets you size up five funds against each other.
If how-to advice is what you're after, Fidelity offers articles with titles like "Diversification Through a Single Fund" and webinars on topics like "5 Myths of International Investing."
Mutual fund investors who use Fidelity as their primary broker, in rating the broker on 14 attributes deemed the most important to survey takers overall, gave the company the highest marks for Trade Reliability and Web Security, which were tied at a Customer Experience Index score of 85%; Range of Products Available and Customer Service, tied at 78%; and Site Performance, 77%. (Read more about Fidelity brokerage account features in our earlier Best Online Brokers coverage for 2019.)
Charles Schwab Mutual Funds
Charles Schwab also made the list of Best Online Brokers for Mutual Fund Investors, with a 72% Customer Experience Index score. The online broker has plenty to offer for those seeking to learn how to invest in mutual funds.
A key feature is Schwab's Mutual Fund OneSource service, which includes thousands of no-load, no-transaction fee funds run by professional portfolio managers from fund companies including American Funds, Invesco, MFS and T. Rowe Price. Overall, Schwab's OneSource offers 3,440 funds with zero transaction fees that are open to new investors. At the end of March, Schwab had $1.18 trillion in overall mutual fund assets, up about 1% from a year ago.
Schwab's site offers mutual fund "picks" from its investment advisory team. It also offers educational articles, fund screeners and a "portfolio builder" to help investors construct a diversified portfolio on their own. The discount brokerage also touts its own low-cost index funds, which now charge some of the lowest fees in the industry, such as a tiny 0.02% expense ratio for its Schwab S&P 500 Index Fund.
Heather Fischer, vice president of Schwab's mutual fund, ETF and 529 platforms, says it's important to provide investors with as many tools as possible so they can narrow down the "universe of more than 10,000 funds to the right five or six funds."
"The digital experience is something we're heavily invested in," said Fischer. "It's important to clients of all demographics and ages and all styles of investing. We want to meet them whenever and wherever they are in their investment journey. The educational component is critically important. Our role is to help them narrow down what's right for them."
A cool, helpful feature for investors looking for advice is Schwab's "OneSource Select List." Each quarter, Schwab fund experts screen funds and come up with a list of quality mutual funds with no loads and transaction fees for investors to consider. These picks include many types of funds, ranging from small- and large-cap U.S. stock funds to international funds and bond funds to specialty funds. The list, however, excludes "esoteric" funds, such as those that use leverage to boost returns.
Investors who need help building a portfolio — whether it's a conservative or aggressive one — can use Schwab's five-step "Personalized Portfolio Builder." All you need to do is choose an account (such as a regular or tax-advantaged IRA), select the type of investment you're interested in, provide a snapshot of your risk profile, specify how much money you want to invest and then use Schwab's asset allocation tool to compare funds based on your investment goals, risk tolerance and time horizon. Schwab will determine how many shares you need to purchase in each fund to meet your asset-mix requirements. Once you're happy with your mix of funds, just click the "trade" button and you'll have a diversified portfolio up and running.
Number crunchers who want to see where they stand with their savings, can use Schwab's online calculators that run things like retirement savings projections. Investors who want to self-educate on mutual funds geared toward retirement savings can go online and take Schwab's "Retirement Income Quiz" or digest information articles such as "How to Save for Retirement" and "3 Ways to Start Investing."
Mutual fund investors who use Charles Schwab as their primary broker gave the broker the highest Customer Experience Index scores for Web Security at 88%, Trade Reliability 86% and Customer Service 84%. (Learn how Schwab brokerage ratings by investors put it at the top overall in our 2019 Best Online Brokers research.)
TD Ameritrade Mutual Funds
Also ranking high in the Best Online Brokers for Mutual Fund Investors is TD Ameritrade, with a Customer Experience Index score of 58%. The discount brokerage gives investors access to more than 13,000 mutual funds, including more than 4,100 that charge no transaction fees.
And TD Ameritrade provides more than just quantity. TD Ameritrade offers a full suite of online tools and resources that assist in the fund selection process.
Investors seeking help and an edge when picking funds can use the online broker's "Premiere List," which provides top transaction-free fund picks from Morningstar.
To help whittle down the number of funds to buy from 13,000 to a single fund or a group of funds to build a portfolio, TD Ameritrade offers what it calls a "complete mutual fund toolbox." Inside the toolbox, investors will find fund "screeners," a "Compare Funds" feature that allows for side-by-side comparisons of up to five funds, and access to Morningstar's "Instant X-Ray," which analyzes the mutual fund's holdings based on style, asset mix and sector weightings.
Mutual fund investors who use TD Ameritrade as their primary broker gave the highest Customer Experience Index scores for website Security 82%, Trade Reliability 80% and Options Trading Platforms 73%. (Find out why investors ranked TD Ameritrade among the top brokers for stock Research Tools and Investment Research.)
Please click here to read the original article on the Investor's Business Daily website.