A Review of Scottrade's Online Investing Service

I have been using Scottrade's online investment service for a number of years now. I initially chose it because it offered the lowest commission rates. Since I was initially investing only small amounts, I wanted to minimize overhead costs that could eat into my profits. Although investors can call up their Scottrade representative and discuss specific stocks, Scottrade's online investment interface is primarily designed for those who do their own research and don't rely on the advice of a broker.

Preparing for Online Investing

Before I ever started investing in the stock market, I did research on companies that I thought might be good investments. I read financial analysts' reports about specific companies, industry trends, and broader market issues. I also set up portfolio trackers and made fictitious trades to see how well my investments would have worked out if they had been actual investments. As I read more and more analysts opinions and saw how well they tracked, or didn't track against stock price movements, I came to the personal conclusion that either many of them didn't know what they are talking about or they were making deliberately misleading statements to retain an investment advantage for their own investment firms.

Ready to Invest Online

The more research I did on my own and the less I listened to professional investment analysts, the better my pro-forma portfolios performed. At one point, I recommended a stock to a relative who had a full service broker (not Scottrade). He went in to the broker's office and asked him about the stock I had recommended. The broker didn't have any information, but when he looked up the data, he not only agreed with my recommendation, but the broker actually purchased the stock for his own personal account. At that point, I thought I was ready to put my money where my mouth was and establish a real stock account.

Scottrade's Online Trading System

As I mentioned, Scottrade was one of the cheapest online investment services, yet had a well-known brand. The trading interface was good and most stocks could be traded directly. Pink sheet stocks and issues traded on foreign exchanges could not be purchased online, but a phone call to the local Scottrade agent's office could be made to make these kinds of trades, although the commission was higher than the online standard. The trading tools are helpful, the online platform is quite stable, and I have never experienced any service outage or found the Scottrade trading platform unavailable.

Scottrade Lacks Dividend Reinvestment Program

I found online orders to be executed quickly and transaction status could be monitored in real-time. The one negative that I count against Scottrade is that they do not have a DRIP or dividend reinvestment program. These programs allow dividend received from a stock to be automatically reinvested in that stock without a commission. They are handy for the small investor who is planning on holding specific high dividend-paying stocks for the long haul.

Accessing Funds from Scottrade's Online Stock Account

A plus for Scottrade is that, in addition to paper checks, they offer a debit card which allows one to withdraw available funds from one's Scottrade account at any ATM, or make purchases with those funds wherever debit cards are accepted. This makes it very easy, for some too easy, to withdraw funds from their investment account.

Scottrade Investment Accounts for Children

I even established a custodial account for my son with Scottrade. While he initially didn't want to lock up his money until college, he was thrilled to watch his initial investment of $1000, saved from years of birthday money, multiply many times over. He was also thrilled when I allowed him to take withdrawals of half the dividends that he received, especially when those amounts became higher than his entire initial investment. We also enjoyed reviewing company information together to decide how to invest the rest of his dividends.

Final Recommendation for Scottrade

For investors who are experienced at doing their own research, online investment services like Scottrade's are a good choice. To use them effectively, an investor needs to stay on top of the latest updates and news about their stocks and stocks in which they are considering an investment. If you don't have the time for this kind of intensive research, then you may be better off with a full service broker. In the latter case, visit several, and interview them before you invest with them. Ask them about specific stocks that you have researched to see if their analysis matches yours, or each other's.