Friday, April 11, 2008

Should I use a broker?

Should you use a broker? Do they actually help you pick the “best stocks”? Probably not. In the old days only those big professionals knew how the stock market worked. The rest of the people barely understood what a stock was.

During this time a stock broker was very much needed. They kept people from making foolish mistakes with their money.

Today information about trading is all over the web. A search for “learn to trade the stock market” brings up over 400,000 results. With all this information around the web anyone with spare time can learn trading techniques.

Whoever has the time to learn and practice their trading will find that this huge “complicated” stock market can be really quite easy. There are no big mysteries that only brokers know about trading.

In fact using a broker to give you trading advice may actually hurt you. There are a couple major reasons why using a broker for advice can hurt your portfolio.

1. There is no guarantee that the “expert” broker is really an “expert”. You don’t know them; you have never seen their trades. It could be that the broker you are getting advice from has never made any real money trading stocks. Maybe they blindly put all their savings in random mutual funds and hope for the best you don’t know.

2. You need to follow your own rules. Ok so we will say that your broker does know a thing or two about the stock market. Should you take their advice now? No. Let us look at this example. You talk to your broker about stock $XYZ. They said that they like the stock. So, you buy it.

You don’t know why you bought it. What your target is or your stop. Maybe he liked it because he heard good news but bad news comes out the next day. You simply will not trade the stock the same way your broker does.

3. Nobody cares about your money as much as much as you do. When your broker gives advice it may be different then what he himself would do, why because he isn’t attached to your money. It will not affect his life if you are successful.

Maybe he will tell you to stay in a stock after a large down week. He uses his theory that stocks are a long term play if you hold onto it, it will eventually go up. What he doesn’t tell you is that if that was his money he would cut his losses short and find a better trade.

There are many reasons why you should not use a broker. When it comes to investing it is much better to find stocks based on your own research and experience.

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