Millennials and Gen Z investors have entered the stock market at record rates since 2020 and many are looking for the best online broker for beginners.
If you're a new investor looking to get your feet wet with investing, where should you start? Investor's Business Daily's Best Online Brokers 10th annual survey for 2022 measured investor sentiment toward online brokers' performance and can help you find the online broker most suitable for you. The full results can be found in IBD's list of the Best Online Brokers for 2022.
IBD and polling partner TechnoMetrica Market Intelligence asked investors to rate their primary online broker based on 15 key attributes. Of all the brokers surveyed, the four with the most customers age 35 and under were Fidelity, Robinhood, Charles Schwab and E-Trade.
"The most popular broker with young investors is Robinhood, with 34% of the people we polled. The second most popular is Fidelity at a distant 13%," said Raghavan Mayur, President of TechnoMetrica Market Intelligence, in a phone interview with IBD.
Of course, attracting a lot of young investors doesn't mean a broker offers the best services that will help them trade successfully. Robinhood, for instance, wasn't rated highly overall by its customers or for key features like customer service and trade speed execution. The broker said it has recently made improvements in these areas.
Generation Investor
This new generation of investors, who already make up a sizable portion of the overall market, is very different from the online traders of years past. According to a recent survey from Charles Schwab, roughly 15% of investors currently invested in the markets started in 2020.
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That study deems these new investors Generation I, short for Generation Investor, and highlights how young investors are a very different breed than the generations that came before them, with different needs. Finding the best online broker for beginners is paramount for these new investors.
"I think what's most interesting is that these people are very price sensitive," said Mayur. "Roughly half of them prioritize lower fees. Beyond that, roughly one-third are interested in other things like better advice from their broker, better information on how to trade options, better education and research, and better buy lists."
The meme-stock craze of 2020 and 2021 introduced many of these new faces to the market. Others were prompted to start investing with their government stimulus checks amid the pandemic. Regardless of what got them started, this new generation is here to stay and needs the right resources and support.
A New Type Of Investor
According to the Charles Schwab survey from 2021, more than half of all investors starting during the pandemic were millennials (born between 1981 and 1996). Meanwhile, 16% were part of Generation Z (born between 1997 and 1999). For comparison, the pool of pre-pandemic investors saw millennials making up 29% of the total, while Gen Zers made up only 3%.
The survey noted that the average household income for this new batch of investors is around $55,000. That's certainly lower than the $88,000 average of the more experienced, pre-pandemic group of investors. Additionally, more than half of these newer investors report living paycheck to paycheck and had their finances impacted by the pandemic.
"In the past, there's been a perception that those who are invested are spending tons of money on the market. But the majority of young investors today want to start small. It's a really big priority for them," said Kelly Lannan, senior vice president of emerging customers at Fidelity Investments, in a phone interview with IBD.
"It's been a really big year for young investors," Lannan added. "In Q3 alone, Fidelity added 7 million new accounts, 3 million of which were opened by people 35 years old or younger."
Lannan noted the major priority among this new demographic was being able to start as small as possible and grow at their own pace. Features like zero-dollar commissions, no account minimums and fractional share investing all go a long way toward allowing investors to start as small as they feel comfortable with. This type of flexibility is exactly what Generation I is looking for in their search for the best online broker for beginners.
Best Online Brokers For Beginners
When choosing a brokerage, investors should first decide which traits or services are most important to them. Some may value having robust research tools, whereas others want access to option trading. For beginning investors, criteria such as strong customer service and educational resources might be a high priority.
In IBD's investor survey, Fidelity scored the highest of all the brokers in the areas of research tools and investment research. Lannan noted that over 55% of Gen Zers feel strongly about having more research before placing any trades, and Fidelity caters to that.
Charles Schwab ranked No. 1 in customer service, with Fidelity and Vanguard rounding out the top three.
Best Online Broker For Beginners: Mobile-First Investing
Robinhood ranked the highest when it came to mobile platforms and app-based trading. The Menlo Park, Calif.-based broker was the first platform to disrupt the brokerage world with zero-dollar commissions and no account minimums. The broker has always been a mobile-first trading experience, but now offers a desktop trading platform as well.
Jacqueline White, Robinhood's product and consumer communications manager, said nearly half of Robinhood's customers report that they are first-time investors and that their median customer age is 31.
Robinhood also offers educational tools, including learning modules for beginners. The platform has a regular podcast and newsletter to make financial news digestible for users. When investors sign up to use Robinhood, they'll be getting an intuitive, easy-to-use, informative and mobile-first investing experience.
In the IBD Best Online Brokers survey, however, Robinhood ranked low in areas such as customer service and trade speed execution. According to White, the company has made changes in recent quarters to improve on its customer service.
"In October 2021 we rolled out 24/7 phone support for all logged in customers. Now, all customers have access to speak to a customer support representative for any issue — including crypto — in the app. Our phone support offering made us the first major company to roll out 24/7 phone support for crypto."
Other brokers that ranked high in their mobile trading platform included Fidelity and E-Trade. Both brokers also ranked higher than Robinhood in customer service by a wide margin.
One Robinhood user and IBD survey respondent summed up his experience with the platform. Duane Channer commented that what he liked most about the platform was "the speed and ease at which you can execute trades along with the interface." Channer noted, though, that the lack of analysis tools was a sticking point for him.
Option Trading And Other Account Types
Beyond just stock trading, there's been growing interest among young investors in option trading as well. According to the survey, TD Ameritrade, Interactive Brokers and E-Trade ranked highest when it came to option trading platforms.
Another important metric to consider in seeking out the best online broker for beginners is availability of account type. Many people are only interested in a basic trading account. But some may want a broker with a variety of account options, catering to future possible needs. Fidelity, Charles Schwab and E-Trade outperformed in this metric.
Lannan spoke of Fidelity's breadth of offerings as one of its chief differentiating factors and said the broker is among the few that can support investors in a wide variety of their financial needs. These needs include retirement accounts, financial planning and advice, long-term wealth management and more.
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