Buying stocks, bonds, and other investments through a brokerage firm is cheaper and easier than ever. Deals abound, as discount brokers like Charles Schwab and Ally charge as low as $4.95 per trade. In many cases, opening a brokerage account with one of these brokers takes just minutes. Here’s how to choose a brokerage and open an account.
Know What You’re Signing Up for
The first thing you should do is educate yourself on what to expect when working with an investment brokerage firm. Unlike a financial advisory firm, which manages your entire investment portfolio, a brokerage holds money in your account for you to invest as you please. When you decide to buy or sell an asset, your brokerage firm will complete the trade on your behalf. A broker will almost always charge a small fee to execute your trade, though you may be able to buy and sell select ETFs and mutual funds without paying a fee.Vet and Select Your Brokerage
Next, you’ll want to start reviewing various brokerage firms and find one that meets your unique investment needs. Check the box on these common preferences before signing on the bottom line:
There is a variety of brokerage accounts you can open, so it’s best to learn what trading opportunities your broker offers. For example, a regular cash account allows you to trade stocks and other investment vehicles straight up. A margin account, however, is quite different it allows you to borrow cash from your brokerage firm to make trades. While that looks great at first glance, if the market goes south and the broker wants their margin loan repaid, getting the money together can be a significant problem when the financial markets are in decline. Trading on margin is another strategy best left to more seasoned traders.
You’ll also be asked to specify whether you’d like to open a standard taxable account or a tax-advantaged retirement account. An individual retirement account (IRA) allows you to deduct contributions on your tax return. A Roth IRA uses post-tax contributions but allows your money to grow and eventually be withdrawn tax-free. By contrast, the money in a regular taxable brokerage account will be subject to taxes on capital gains and any dividend income.Complete the Paperwork and Fund Your Account
The brokerage firm will ask you for key personal information to open an account. Expect to provide your
The brokerage account form can almost always be found online, on the brokerage firm’s web site. As long as your information is in order, this process should only take 10 to 15 minutes. Just finish filling out the requested information, follow the on-screen prompts and then fund your account through electronic transfer. You can choose how much to deposit in the account, though be aware that the brokerage account may have a minimum initial deposit to get started. The deposit will be deducted from the bank account you specify, and once the payment clears you’re ready to start trading.What to Watch Out For
Some brokerage firms have a minimum initial investment requirement. These minimums typically fall somewhere around $500 to $1,000. In addition to meeting this minimum with your first deposit, you may need to maintain that balance to avoid fees. Even if there’s no formal minimum for opening an account, many mutual funds have a minimum investment you’ll need to meet to invest in them. If you’re buying shares of stocks or ETFs, the minimum investment is just the cost of one share.
The big players in brokerage services, such as TD Ameritrade and Merrill Edge, normally offer simple and straightforward fee schedules. However, this may not be the case at every firm you research. Many brokerages tout low trading fees, only to hit you with extra charges down the line. Take a thorough look at the fees associated with each brokerage before you make any final decisions.Tips to Step Up Your Investment Game
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