[LetsHugItOut]

OP,

Investment management firms like Vanguard, Fidelity, or T. Rowe Price serve two distinct functions that are relevant to your situation as an inexperienced, low-net-worth individual investor:

1) They allow you to open brokerage accounts with them. You stick your 20k into this account, and can use it to buy mutual funds, individual stocks, individual bonds, annuities, and a number of other products.

2) They manage mutual funds, including index mutual funds. Mutual funds are large, regulated pools of money that are invested by a fund manager (like Vanguard) on behalf of its clients. In return, the fund manager collects fees -- often a fixed fee (called a load fee) when the fund is purchased, and then a percentage of your money in the fund annually. Roughly speaking, there are two types of mutual funds: actively managed funds, in which the portfolio manager attempts to choose stock/bond/whatever allocations that will provide greater return/lower variance/whatever than the market, OR passively managed index funds, which attempt to MATCH markets (an easier task, and thus one achievable through passive rather than active management). Due to the passive nature of index funds, fund companies are able to charge much lower fees for these than for active funds. So while an active fund might charge you 2% annually of the money you have in that fund, an index fund might charge you 0.5%. Convential wisdom on this board and elsewhere suggests that index funds (vs. actively managed mutual funds or individual stocks or whatever else) are the best place for the passive, inexperienced investor to keep his money.

Keep in mind: these functions are distinct. So you can open a brokerage account at, say, ETrade and buy Vanguard index funds from it.

As I think you know, you're looking for a firm that will best serve function 1 for you. Many posters, however, are suggesting the firm you should choose for function 2.

The confusion may be arising because many posters here believe (reasonably) that it's smart to use the same firm for both functions 1 and 2. If you use a company like Vanguard or Fidelity for BOTH functions -- that is, open an account at Vanguard and then buy Vanguard funds in it -- there is a savings advantage in that the load fee is waived. Further, Vanguard's index funds have fees as low as any and are highly-regarded, which is why Vanguard is the firm mentioned most often in threads like this one.

The difference between brokerage firms most revelant to you, IMO, is the amount of guidance offered to clients. A firm like Merrill Lynch or Edward Jones offers maximum guidance: you can go to a branch, talk at length with an investment representative, and decide with him where you'd like to invest your money. You hand him a check, he'll invest it where you discussed, and you can talk to him when you'd like to make changes. The knock on these full-service brokerages: these investment reps a) might have no idea what they're doing and b) might pressure you into investing in products, like actively managed funds, that generate more profit for the firm.

On the other end of the guidance spectrum are firms like ETrade and Scottrade. These firms offer essentially no guidance and have no branches: all decisions are yours and all trading is done online. If you take this route, you should either a) find out what you're doing, via reading this board or other things or b) talk to independent financial planners, as another poster mentioned. You should be able to pay $X to talk to someone for a few hours. Again, there's no guarantee that these people know what they're doing, and the frequent advice here that index funds are best is good.

Somewhere in the middle are Schwab, Fidelity, and Vanguard. These firms make it very easy to open accounts and trade online completely on your own, and also have branches and call centers if you'd like to speak to investment reps. For my money, these (particularly Vanguard and Fidelity) are the smartest choices for the low-net-worth individual investor. As have been mentioned, Vanguard and Fidelity are especially good because if you open an account at one of these firms and buy index funds from the same firm, they will waive the load fee.

IMO, given that our financial decisions are some of the most important that we have to make, it is worth it to read and learn enough that you're able to, at the very least, objectively consider the advice of the Merrill guy or independent financial planner or your father or whoever and sensibly make the final call on where your money goes to.