Last week, I wrote an article Understanding and Avoiding Mutual Fund Fees and a few commenters had some questions that I’d like to address here.

“Can you explain how one goes about investing in mutual funds?”

Thanks to Sun for this basic question. As he found out some brokerages charge a significant commission. In his case, Charles Schwab wanted $50 to buy a specific Vanguard fund that he was interested in. When I asked their customer support, it had gone up to $76! (In Schwab’s defense, they offer many mutual funds with no commission, but just not this particularly attractive Vanguard one.)

There are a couple of ways you can go with this – brokerage or fund family.

The online brokerage option has companies like Schwab, E-Trade, Ameritrade, or Zecco. You’ve probably heard of them (If you haven’t seen the E-Trade baby commercials, you need to give up the carrier pigeon communication and rejoin society.) I typically use online brokerages to buy ETFs, which are like mutual funds, but trade as stocks. This allows me to avoid the Schwab $76 mutual-fund commission since stock trades are usually under $10.

On the other hand you can go with a fund family. If you invest enough money with companies like Vanguard, Fidelity or, recent Lazy Man and Money advertiser, TIAA-Cref for example, you can buy the fund directly from them. I did this with Legg Mason to invest in their Value Trust fund managed by the legendary Bill Miller. I took advantage of his streak of consistently beating the S&P 500 in the late 90’s. (I think I hit something like the tail 6 years of it, before using the money to buy a car.)

More recently, I invested directly with Fidelity in my SEP-IRA a couple of years ago. Each year I add to that account and choose amongst Fidelity’s funds. I might be able to invest in other funds outside of Fidelity with that account, but I honestly have no desire as the Fidelity options suit me.

I’d like to read your thoughts about online brokers.

Todd came up with this question. In the early 2000, I was a little obsessed with day-trading Internet stocks. (I was lucky not to lose big money.) However, at the time, I had a number of brokerage accounts. I remember thinking how much smarter I was than anyone else for having Datek, which offered a great combination of speedy execution, low fees ($9.99 a trade were Ameritrade was around $15 I think), and some cool tools (I would see Datek Streamer in my dreams).

With the benefit of time, I’m a bit wiser. If you are going to be a day-trader, you should know enough about investing to pick out the best brokerage for you. You would be destined for failure at day-trading if you are going to my advice on brokerages. Did we get all the day-traders out of here? Good. You still around? Awesome.

Here’s a secret about online brokers, they are more or less the same. The commissions change slightly, but it’s such a marginal difference for the casual investor that it isn’t worth worrying about. They all have a lot of tools, and I suppose some tools are better than others, but typically, I think people are best off in low-cost index funds – and there are plenty of free online tools to find those. Even if you don’t believe in looking for low-cost index funds, I’ve found just about every tool that I’ve wanted available for free online. (I’ll leave some margin of error for the chance that there are some tools that I didn’t know that I wanted available at some brokerages.)

What about everything else?

Hey, you have to ask questions if you want me to try to answer them. That’s what the comments space below if for. However, I suggest checking out Free From Broke’s ways to invest in mutual funds as a good gateway article to other topics that I didn’t discuss here – asset allocation comes to mind.