If you’re looking to invest in more than your tax-advantaged retirement accounts, you may want to open a brokerage account. A brokerage account is an account with a financial institution that allows you to buy and sell investments. The investments can include stocks, mutual funds, ETFs, bonds, and more.
When researching brokerage accounts, the options available may seem overwhelming at first, but by following a few simple steps you can find the optimal account for your needs.
Keep an eye on fees
One thing to look out for when comparing brokerage accounts is the fee structure. When you buy or sell an investment, the brokerage may charge a commission, a flat fee, or a combination of the two. It’s important to compare the fees charged by different brokerages to find the one that best suits your needs.
The fees may be affected by the level of service you’re paying for. Brokers fall into two main categories: full-service brokers and discount brokers. Full-service stockbrokers are there to help you steward your investments; they will answer your calls, report on your portfolio and even provide access to research and funds normally beyond the reach of small-time investors. Discount brokers will give you the tools you need to make your own trades, but won’t provide the perks for which full-service brokers are known.
A difference between the two comes down to the fees you’ll pay. Full-service brokers charge the most; however, their services may be worthwhile to people investing very large sums of money. People investing smaller amounts may see better returns by opening an account at a discount brokerage.
Decide how you want to invest
When you’re opening a brokerage, it’s important to consider what kinds of investments you want to make—stocks, bonds, mutual funds, ETFS, or something else. Different brokerages offer different investment options and provide different services, so it’s important to know what’s available before you open an account.
Once you decide to open a brokerage account, it’s time to choose between a cash account and a margin account. Most investors opt for a cash account, which requires that you put your own funds up in order to trade. A margin account, on the other hand, allows you to borrow money to trade with. This can allow for more flexibility when investing but can open you up to more risk as well. If you’re interested in opening a margin account, remember you’re on the hook for the entire amount you borrowed—even if the stock you bought decreases in value.
Consider ease of use
When choosing a brokerage, keep in mind how easily you will be able to make trades. If you are planning on online trading, be sure to try out the broker’s app and website before making a decision—dependable tools are important to an investor.
It is just as important to seek out brokers with a track record of reliability. Whether it’s a stockbroker who doesn’t pick up the phone or a brokerage with app outages during periods of intense trading, there’s little worse than losing control over your money when you need it.
Many investors find the resources provided by full-service brokers to be worth the expense in commissions, while others find that minimizing fees leads to greater long-term growth. The key here is in choosing a brokerage firm offering services of which you will make meaningful use. By choosing the brokerage firm offering the conveniences that work for you, you can more effectively invest your money.
This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. All investments carry some level of risk including the potential loss of all money invested.