Growing up in rural America, where many still

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1 Volume XXXI, No. 2 When Unlimited Really Isn t Editor s Outlook Comparison: Online Discount Brokers Growing up in rural America, where many still consider a verbal agreement and a handshake to be as binding as a written contract, I expect some truth in advertising. In 2010, when Apple released the original ipad, I took the plunge and signed up for an unlimited data contract with AT&T. Having been a long-time AT&T Wireless customer, I had grown numb to their spotty service and less-than-helpful customer service. But I also subscribe to the idiom, better the devil you know than the devil you don t. As it turns out, AT&T stopped offering unlimited plans only a week or two after I got mine, so I was feeling rather fortunate. A few months back, there were rumblings in the media that AT&T was starting to throttle the speeds of those who were among the top 5% of data users. Throttling effectively slows down the data transfer rate of a device; it is a practice used by cable companies and cell phone providers in an effort to regulate network traffic and ease congestion. The practice isn t new, as Internet service providers (ISPs) sometimes throttle speeds to reduce bandwidth usage. The reaction to AT&T s throttling was more pointed, however, as people are paying for unlimited data, or at least so they thought. AT&T, however, has changed the definition of unlimited to mean any amount of data under 3G a month. If you are an unlimited-use customer and go over that limit, your services will slow down. As much as I use my ipad, I have never gone over 2G of data usage a month, let alone 3G, so the chances of getting throttled at this time are pretty small. However, at what point will AT&T decide to lower that threshold to 2G? Perhaps I am naive, but I expect to get what I pay for. Recent surveys run in the weekly CI showed that 56% of our readers use a smartphone, and 29% (continued on page 2) Updates Mvelopes...4 Stockhouse...5 ischeduled Portfolio Manager..6 IFS ChartingStation...7 On the Internet Tax Resources Online W ith the continued rise of online and mobile banking, online discount brokers are constantly evolving. Due to their low cost and relative ease of use, online discount brokers are usually the preferred avenue for buying and selling stocks, particularly among individual investors. Online discount brokers are all competitive when it comes to pricing, so they try to distinguish themselves through the various features they provide. The most widely used online discount brokers all showed improvement over the past year in the services they provide. In this comparison, I take an in-depth look at the top five most popular online discount brokers among AAII members, sharing my thoughts based on a hands-on investigation and discussing their new areas and features. I also point out notable differences between these brokers, highlighting the advantages and disadvantages of each. These five brokers are recognized as the best, so it comes as no surprise that, combined, they are used by 73% of the AAII members who answered our survey. These brokers each provide fundamental data and research tools that can help you stay on top of the market and your investments. Spreadsheet Corner Using Percent Rank in Excel Feature (continued on page 22) Masonson s Stock Market Dashboard, Version Fundamental Focus Return on Capital Employed Technically Speaking Moving Average Convergence- Divergence (MACD)...30

2 Online Discount Brokers rs By Z. Joe Lan (continued from page 1) AAII Broker Survey Each year, we aggregate member responses for the AAII Online Discount Broker Survey and detail the results on our website ( com/brokersurvey). Members who participate in the survey are asked to fill out a questionnaire regarding broker reliability and quality, along with individual questions concerning investor trading frequency, securities traded and portfolio size. Reviewing the survey results for 2011, the five brokers that our members used the most were Scottrade, Fidelity Investments, Charles Schwab, TD Ameritrade and E*Trade; identical to the top five from To participate in our broker survey, visit and select Surveys from the Quick Links tab. The survey is open year-round, and we look forward to your input. Comparing the Brokers Each broker has its strengths and weaknesses, although the gap is closing every year as brokers improve their offerings. The grid on pages 24 and 25 summarizes the five brokers similarities and differences based on trading platform, stock and fund data, and portfolio tools. Trading Platform For do-it-yourself investors, the trading platform is an essential consideration. Most online brokers offer two separate trading platforms one for regular users and one for power users. Trading platforms for regular users are all relatively similar. Webbased platforms are used by each of the brokers in this comparison, and they can handle stocks, mutual funds, exchange-traded funds (ETFs), options and bonds. Users need to specify the action type, number of shares, symbol, order type and order duration to execute the trade. Each broker allows you to place market and limit orders, and each usually also offers to handle stop, stop limit and trailing stop orders. In addition, users can select whether the order is good until cancelled or only good until the end of the trading day. Where the brokers differ is in their trading platforms designed for power users. Power users are defined as investors who either have a certain portfolio size or make a certain amount of trades in a period. These users are given access to a broader array of trading tools, such as realtime price quotes and volume data. In addition, most will offer more advanced investing tools, such as the ability to backtest or chart technical indicators. The active trading platforms also offer direct market access, allowing investors to interact directly with the order books of an exchange. Normally, investors have to go through broker-dealers, but direct access theoretically cuts out the middle man, allowing orders to be executed more quickly and giving the investor more control over the trade price. Table 1. Ratings of Most Popular Brokers Among AAII Members Usage by Rating (Top Score = 4) 2011 Respondents Trade Execution Trade Trade Rank Broker (%) Price Speed Reliability Satisfaction 1 Scottrade, Inc Fidelity Investments Charles Schwab TD Ameritrade E*Trade Research Data and Tools The top online brokers all provide fundamental data and research tools to investors looking to perform due diligence before purchasing an investment holding. The data provided is comprehensive and typically comes from trusted data sources, such as Morningstar and Thomson Reuters. Real-time quotes are now provided by most online brokers. Often, users have to manually refresh the data, as it does not refresh ally. Key statistics similar to those found at investment research websites are offered as well. The top online brokers all offer some form of charting with the ability to do simple technical analysis. At the very least, price and volume data is provided in real time, and chart options typically include line, openhigh-low-close and candlestick. The best brokers also offer the ability to chart several stocks on a single chart and to plot technical indicators. One interesting feature to look for is the ability to chart company events, such as dividends and earnings, to see how the stock price has reacted to these events. Financial statement data is also provided by all the brokers that are reviewed in this article. In addition, earnings data going back several periods, insider activity, and consensus earnings estimates going forward are all offered. The best brokers also provide analyst reports from top investment research firms and institutions, such as Standard & Poor s. Educational sections providing videos and articles on introductory investment strategies can be found at each of the broker sites reviewed here. In addition, look for community sections that allow users to discuss investment ideas and strategies with each other. A myriad of investment tools are also available at the broker websites. The top brokers all offer some level of screening capabilities, as well as 22 Computerized Investing

3 tools to help users examine their portfolios as a whole. The top brokers differ in what they offer beyond basic screening and simple portfolio tracking tools. I discuss the specific features of each below. Scottrade The Top Five Brokers Scottrade For the second year in a row, Scottrade took the top spot as the most widely used online broker according to our 2011 member survey. Scottrade s home page has changed slightly since last year; it shows the total portfolio value, along with funds available for trading and the cash balance. Scottrade also provides other data on the home page, including open and completed orders, positions, alerts, watchlists and messages. Scottrade s Quotes and Research tab provides extensive data, especially on the markets in general. The Analyst Views section provides S&P star ranking and Briefing.com rating changes for securities. A chart details the ratings changes and links to a PDF file giving the reason for the change. A section on the world markets offers data on Asian, European and American indexes, as well as the strength of major world currency pairs. The Market Calendar lists major events, either as of today or for the week, for world economics, initial and secondary public offerings (IPOs and SPOs), earnings, dividends and splits. For earnings, users can see a chart depicting the stock and the analyst estimate range as well as the consensus estimate. When the information is available, the chart will also include the actual earnings and the earnings surprise. The dividend information provided includes the dividend, pay date, ex-dividend date, announcement date and record date. Splits include the ratio, pay date, exdate, announcement date and record date. Economic events for each day are also listed. For individual stocks, Scottrade s company search brings up a summary page giving the current quote information, along with a simple price and volume chart. Analyst reports are accessed on the right-hand side of the page, including the Standard & Poor s Stock Report, Thomson Reuters StockReport+ and Second Opinion Weekly Report (if analysts have not written a report on the company, none will be provided). Tabs running across the top of the summary page take you to news, charts, fundamentals, earnings, insider data, and financial statement data. Scottrade offers some simple technical analysis capabilities. After clicking on the charts tab from the summary page, users can specify the type of investor they are long-term or medium-term investor or mediumterm, short-term or intraday trader and the price chart will be tailored to that type, presenting the appropriate technical indicators. You can also add upper or lower indicators (10 upper and 19 lower). Scottrade also allows users to chart events such as earnings and dividends. Users can compare one stock to other stocks and major indexes, as well as to market sectors, fixed income, commodities and currency rates, all on the same chart. A relatively new service that Scottrade has added is personal banking. Scottrade now offers checking, savings and money market accounts as well as online bill pay. In addition, Scottrade will reimburse you for any fees you are charged for account transactions using ATMs. Scottrade provides a robust knowledge center (one of the best) that offers educational articles for a range of personal finance needs. The broker offers a tax guide that is fairly comprehensive, providing new information yearly. In addition, retirement calculators, an IRA comparison, and a life events advisor can all be found 23

4 COMPARISON: ONLINE DISCOUNT BROKERS Online Discount Brokerage Firm Web Address Traditional Additional Order Types Trading Tools Order Routing (Automatic, User-Defined) Alerts (Price, Volume, News) Automatic Trade Triggers Active Trading Active Trading Platform (Cost) Tools Securities Traded Order Routing (Automatic, User-Defined) Alerts (Price, Volume, News) Demonstration of Use Stock Tools Quotes and Data Ratios Financials SEC Filings EPS Estimates Research Reports and Ratings News Industry Data Charts Technical Indicators Screening (Number of Companies/Fields) Historical Prices Mutual Fund Data Provider Tools and Data Ratings Risk Statistics Calendar Performance Annualized Performance Compare to Index/Category Fund Holdings Charts Technical Indicators Screening (Number of Funds/Fields) ETF Tools and Ratings Data Risk Statistics Calendar Performance Annualized Performance Holdings Technical Indicators Screening (Number of ETFs/Fields) Portfolio Quotes Tracking Tools Portfolio Analysis Tools Watchlists Dividend DRIP Offered Reinvestment Fractional Shares Handled Plan Dividend Reinvestment Fee (Cost) Other Tools Mobile Trading Roth IRA Conversion Calculator Retirement Tools Online Banking Charles Schwab short sell, stop, stop-limit, trailing stop, day, good-till-canceled (via StreetSmart Pro) StreetSmart Pro 4.22 (free for active traders) stocks, ETFs, options, user-defined (price, volume) (5 years; 5 quarters) (Reuters) (Schwab; various brokers) (Dow Jones, Canada NewsWire, PR Newswire) (7,200+/75+) (1998+; daily) Morningstar (Morningstar) (beta, alpha, std dev, Sharpe, mean) YTD; 5 years; 1 quarter; 1 month (20,000+/25+) (Schwab report card; Morningstar) 1 quarter 1-, 3-, 5-year; inception (900+/50+) (asset type, sector) E* Trade short sell, stop, stop-limit, trailing stop, day (price) Power E*Trade Pro 5.0 (free) stocks, ETFs, options, user-defined (price, volume) (5 years; 5 quarters) (Reuters) (various brokers) (Dow Jones, MarketWatch) (8,900+/40+) (daily; 1 year) Morningstar (Morningstar) (beta, alpha, R-sq, std dev, Sharpe, correlation) YTD; 10 years; 11 quarters; 1 month 1-, 3-, 5-, 10-yr (Morningstar) (beta, alpha, R-sq, std dev, Sharpe, correlation) 10 years (when available); 1 quarter 1-, 3-, 5-yr; inception (1200+/40+) ; streaming via MarketCaster (asset type, sector, style) in this area. The interactive learning area of the website allows users to review videos and discuss events and strategies with a large online community. In addition, live events and webinars are available. There are also plenty of seminars to attend at local Scottrade branches. Fidelity Investments According to our members, Fidelity is the second-most widely used online broker. After logging into the Fidelity website, you are given a listing of your accounts, along with subtotals for each and a total portfolio value. Several tabs are available on the main page. The portfolio positions tab breaks down your holdings and presents all the usual data for each, including per share and total cost basis and dollar and percentage change since purchase. In addition, links to buy more, sell, research, or view news on each individual holding are 24 Computerized Investing

5 Fidelity Investments short sell, stop, stop-limit, trailing stop, day, good-till-canceled (price & news) Active Trader Pro (free for active traders) stocks, mutual funds, ETFs, options, user-defined (price) (5 years; 5 quarters) (StarMine SmartEstimate) (AGR Ratings; various brokers) (CNN Money, MarketWatch, Reuters) (9,000+/100+) Morningstar (Morningstar) (beta, R-sq, std dev) YTD; 1 quarter; 1 month 1-, 3-, 5-, 10-year (category only) (12) (beta, R-sq, std dev, Sharpe) 1 quarter 1-, 3-, 5-yr; inception (900+/20+) (asset type) Scottrade short sell, stop, stop-limit, trailing stop, day, good-till-canceled, good-until-date ScottradeELITE (free for accounts of $25,000+) stocks, ETFs, options (price, news) real-time (manual refresh; streaming via Scottrader) (5 years; 4 quarters) (Reuters) (S&P, Reuters, Second Opinion Weekly) (BusinessWire, Dow Jones, PR Newswire) (9,000+/30+) Lipper (Lipper) YTD; 1 month; 1 quarter (20,000+/22) (Lipper) YTD; 1 month; 1 quarter (900+/18) (mutual funds only) (mutual funds only) TD Ameritrade short sell, stop, stop-limit, day, good-till-canceled ; user-defined Command Center 2.0 Windows/Mac (free) stocks, ETFs, options, user-defined (price, volume) (5 years; 4 quarters) (Reuters) (various brokers) (MarketWatch, Marketwire, PR Newswire) (11,000+/45+) (1989+; daily) Morningstar (Morningstar) (beta, alpha, R-sq, std dev, Sharpe, mean) YTD; 4 years; 1 quarter; 1 month (20,000+/35+) (Morningstar) (beta, alpha, R-sq, std dev, Sharpe, mean) 4 years; 1 quarter (900+/40+) (asset type) provided in the actions column. The research tab provides a quick snapshot of the tools available to Fidelity users, such as a one-year chart and the latest news and analyst research reports. This page also provides a link to the alerts page where users can sign up for a variety of portfolio alerts to assist in keeping on top of investments. Notifications will be sent directly to your . A quick overview of your portfolio is provided in the analysis tab. The page provides your asset allocation along with your top positions and a style and sector map. A summary of the style and sector of your bond holdings is also available. You can dive deeper into each individual section by clicking on the Learn More link. Fidelity also provides advanced research functionality on the individual firm level. The charts offered 25

6 Fidelity Investments at Fidelity allow users to draw by hand and chart almost 50 different technical indicators directly on the price and volume graph. Events such as dividends, splits and earnings can be charted to see how the announcement of each affected the share price. You can also chart the Dow Jones industrial average, NASDAQ composite index or S&P 500 index on the same chart, as well as up to 25 companies. A separate technical analysis section presents short-, medium- and long-term technical signals for each company. Another useful feature Fidelity offers is the ability to compare up to five companies side by side. Users can choose to compare key statistics, dividends, valuation measures, performance and volatility data, growth figures, profitability ratios, cash and debt numbers, ownership and trading characteristics, and intraday price and volume data. Analyst opinions and research reports are also available. Fidelity provides other tools, several of which are worth highlighting. The Fidelity Income Strategy Evaluator asks a series of personal questions to ascertain your retirement income goals and risk aversion. The tool then asks you to input retirement income and spending needs and the total liquid net worth that is to be included in the plan. An action plan is presented according to your personal circumstances, detailing the returns you should seek as well as the amount you can comfortably withdraw from your retirement accounts. Fidelity also offers Full View, a tool that allows users to enter their entire investment portfolio, banking and credit card accounts, and real estate holdings into their Fidelity account in order to monitor their entire net worth as well as view transactions and investments across all accounts. This is a very strong tool and one of the most popular offered at Fidelity. A screener is only offered for stocks. However, mutual fund research tools, such as the Mutual Fund Evaluator, are provided. The stock screen universe consists of a little over 6,000 stocks, along with around 1,000 American depositary receipts (ADRs), unit trust funds and real estate investment trusts (REITs). However, screen customization is limited. The Mutual Fund Evaluator allows users to search for mutual funds by asset class, category, performance, rate of return, expense ratio and Morningstar rating. The Learning Center offers education on topics including fixed income and bonds, exchange-traded products, technical analysis, and trading. In addition, Fidelity provides free seminars around the country. Charles Schwab Charles Schwab provides a clean main page that details your brokerage accounts and provides the daily change in your portfolio. The broker also provides quick links to your positions, balances, history, news, charts, transfers and payments, order status and statements. Several portfolio analysis tools are available to help investors create and maintain a strategy. Click on Portfolio Analysis at the top of the website to load the portfolio health page. On this page, users can compare their current portfolio with their target portfolio. The website also shows which sectors are out of balance and by how much. In addition, at the bottom of the page, Schwab provides links to further research on mutual funds, stocks, and exchange-traded funds for the sectors of your portfolio that need rebalancing. When users want to change the holdings included in their current portfolio, or change their target asset allocation, the Portfolio Checkup Tool can help in making these changes. The scope of the market research data available at Charles Schwab is noticeably more global than at the 26 Computerized Investing

7 other broker sites. Global research is provided by Credit Suisse and includes reports for various global industries. International performance data is available for a number of countries and regions. Charles Schwab also provides asset allocation guidelines for international investing. Furthermore, a number of highquality research reports are available for domestic industries and sectors, including from notable analysts such as Argus Research, JPMorgan, Briefing.com and Ned Davis. Charles Schwab also provides its own research reports. Schwab offers a market events calendar that, in addition to showing dates for economic events, earnings, dividends and splits, lists dates for conference calls. In the Ideas and Strategies tab, Charles Schwab presents recent ratings changes from the analysts listed above. A research report is also available in PDF format. Charles Schwab offers a variety of methods for researching and choosing individual stocks, including a stock screener, company fundamental research data, expert advice, and stock lists that show top-rated stocks by sector, asset class and Schwab Equity Ratings. The stock screen provides a universe of just over 6,500 domestic stocks and international stocks (ADRs). On an individual stock s company summary page, Charles Schwab provides quote details as well as links to analyst reports from Schwab Equity Research, Credit Suisse Research, Ned Davis Research, Argus, Standard & Poor s, Reuters and Market Edge. The broker also offers a separate sector overview tab that provides performance data for the company s sector, industry and sub-industry. Schwab and Ned Davis also offer sector and industry research reports. Charts are comparable to those offered by the other top brokerage websites, allowing users to compare a firm against other companies, sectors and indexes. A twist that Schwab offers is the charting of fundamental indicators, such as rolling dividend Charles Schwab yield, price-earnings ratio range and rolling earnings per share. Users can also draw trendlines and crosshairs by hand. Charles Schwab provides screeners for both mutual funds and ETFs. Furthermore, Schwab provides access to OneSource Funds, which are the no-load and no-transaction-fee mutual funds they trade. Fundamental research on mutual funds and ETFs is extensive, rivaling that offered for stocks. Fund comparisons present mutual fund scorecards side by side. In addition, funds can be compared by performance and Morningstar ratings. The Schwab Mutual Fund Report Card, free for customers, is a two-page report that provides extensive research information for a mutual fund. A learning center is provided at the Charles Schwab website, although it is not as comprehensive as the one presented at Scottrade s site. As at Fidelity and Scottrade, in-person and online live events are offered. Charles Schwab famously encourages users to call its offices and speak with a Charles Schwab representative, providing more personalized investment advice than the other top brokers. However, trades that you place through Schwab representatives will be more costly than ones you place online. 27

8 TD Ameritrade TD Ameritrade Portfolio positions and account balances are presented on TD Ameritrade s home page, along with your watchlist, order status, messages and the major domestic indexes. The market overview section is separated into five distinct sections U.S. markets, global markets, commodities, currencies and fixed income. A calendar presented on the right-hand side of the page shows economic events, dividends, splits, earnings, IPOs and ratings changes. Sector outlooks are provided by Standard & Poor s. TD Ameritrade offers analyst reports from Credit Suisse, TheStreet.com, Standard & Poor s, Ford Equity Research, MarketEdge and Jaywalk Consensus for individual stocks. Additionally, the broker offers ResearchTeam reports, which provide company ratings based on a combination of the reports offered by five third-party research teams. Technical analysis capabilities provided by TD Ameritrade are similar to those offered by the other top brokers, including a variety of charting types and upper and lower indicators. Users can compare companies and chart events such as earnings, dividends and splits. The valuation tab offered at TD Ameritrade is relatively unique. This area of the website allows users to compare valuation measures, profitability ratios, dividend ratings, growth rates, effectiveness gauges and financial strength figures for a company against its industry, the overall market or competitors. In addition to screeners for stocks, mutual funds and ETFs, TD Ameritrade also offers an options screener. The options screener is simple, but it allows you to specify search criteria such as the strategy type (covered call and calendar spread are the only two options), downside protection values, days to expiration, and whether the strategy is in the money. If you are a frequent options trader, it may be worth taking a look at this feature. TD Ameritrade offers one of the best sets of trading tools available on the Web. In addition to its regular trading platform, which caters to serious fundamental investors, the website offers Trade Architect, aimed at active investors, and thinkorswim, which targets sophisticated active investors. Trade Architect is a Webbased trading platform. It offers several advantages over the regular trading platform, such as visual position profit/loss analysis and streaming Dow Jones and CNBC news. In addition, Trade Architect provides a market/options heat map and access to a community (mytrade) that helps users ascertain the general direction of the market. The thinkorswim trading platform needs to be installed on your computer. However, it offers the ability to trade complex options, futures and forex. You are also able to perform paper trades. Beyond trading tools, TD Ameritrade also offers several investment tools designed to assist investors in building and maintaining a suitable portfolio. Portfolio Planner helps you set up a target asset allocation and aids in choosing securities in each particular asset class. Furthermore, the WealthRuler tool is a simulation engine for retirement planning. Users enter their retirement timeline which includes current age, when they plan on retiring, and projected retirement period current assets, future cash flows and tax information. WealthRuler then runs a series of simulations to determine whether retirement goals are likely to be met. Courses, workshops, webcasts and publications are all offered in the education section of TD Ameritrade. E*Trade E*Trade rounds out the list of the top five most-used brokers. After logging into E*Trade, your net assets are listed along with your cash balance and options to transfer funds between separate accounts. 28 Computerized Investing

9 Tabs on the main page allow you to display your assets by allocation and provide recommendations on how to best allocate your remaining cash. Several portfolio analysis tools are offered by E*Trade. Risk Analyzer, as the name implies, allows users to evaluate the potential risk and rewards of investment choices. Investors can also use this tool to chart their own returns against popular market indexes, find out how much risk specific investments add to a portfolio, run what-if scenarios and stress-test their portfolio for worst-case scenarios. The Portfolio Analyzer tool runs a quick test to see how diversified a portfolio is according to sector, style, and world region. The tool will also spot overlaps in security holdings. Finally, the income estimate displays how much income can be expected from your investment portfolio. The research offered at E*Trade is similar to that found at the other top brokers. The market calendar presents economic events, earnings, splits, IPOs, upgrades and downgrades and market conferences. The calendar also dedicates a separate section to tech earnings. The global markets section provides users with world news and the ability to add international stocks to a watchlist from the Canadian, French, German, Hong Kong, U.K. and Japanese stock markets. In addition, E*Trade also allows users to trade on these international markets. For individual securities, the research area presents financial statement data and ratios as well as research reports from Reuters, Standard & Poor s and Credit Suisse. Industry data for comparison purposes, historical data and insider trading information are also offered. Mutual fund data, provided by Morningstar, is comprehensive but does not differ from that found at the other major online brokers. Data offered on ETFs E*Trade Z. Joe Lan is assistant financial analyst at AAII. includes 10 years of performance numbers (when available) and Morningstar risk and performance ratings. Charts can be displayed for each investment symbol. Numerous technical indicators as well as company events can be overlaid on each chart. The day s range and volume data are displayed for each investment holding. E*Trade s educational section offers articles, videos, webinars and live events. Online banking, including checking accounts and bill pay is a welcome service. In addition, the community section at E*Trade is no longer in beta, as it was when we last reviewed the broker. Conclusion The top five brokers most widely used by AAII survey participants remained the same this year as last. These brokers offer comparable pricing and, for the most part, comparable research tools and information. In recent years, the top brokers have implemented personal banking, and most of them refund your fees for using ATMs if they do not offer ATMs. It s an intriguing idea to have your checking and bill payment features integrated with your brokerage account. Personally, I have not made use of this new service, although the added convenience may be too tempting to pass up. 29