Keep Your Costs Low

• One of the chief benefits of choosing an online discount broker versus a full-service firm is that you can enjoy much lower trading costs. But the cost of making a trade is only part of the story. When choosing an online brokerage firm it is also important to look at incidental costs, like the annual maintenance fee on your account and the cost for paper statements and tax records. Some online firms also charge more for telephone and broker-assisted trading, and for limit orders where you set the price at which you want to buy and sell. Understanding these fees can help you choose the firm that is truly the best for you.
  
  

Diversify Your Holdings

• Keeping a diversified portfolio of stocks is important, but that can be a challenge when working with individual stocks. One solution is to place the bulk of your stock market money in an exchange traded fund that represents a major stock market index like the Standard and Poors 500. You can then round out your portfolio by choosing individual stocks you believe will go up in value. If you do choose to make an ETF the bulk of your portfolio, look for a broker that allows you to buy additional shares without a commission. This will allow you to reinvest any capital gains and dividends into new shares of the fund, without incurring a brokerage commission each time you buy.
  
  

Dollar Cost Average

• Dollar cost averaging is an important concept every stock market investor should understand. When you buy and sell stocks, there is always risk you will get at the top and out at the bottom. Dollar cost averaging eliminates this risk by spreading out your investment and using it to buy at steady intervals of time. For instance, you can choose to invest $100 or $200 a month in your favorite mutual fund or ETF by transferring funds from your bank account to your brokerage firm. This strategy automatically allows you to acquire more shares when the market dips and fewer when stocks are at or near an all time high.
  
  

Annual Portfolio Review

• Before you even open your online stock brokerage account, you should first determine how much of your overall portfolio you want to devote to the stock market, and how much you want to keep in bonds and fixed-income investments. Those figures represent your target asset allocation. At least once a year you should check the percentages you hold in each asset class and rebalance your portfolio as needed. For instance, stocks that had a really good year might represent a higher percentage of your portfolio than you wish. Selling some of those stocks lets you lock in your gains and use the money elsewhere.