Last updated on March 31st, 2020 at 03:26 pm
If you’re interested in buying and selling stocks, mutual funds, or bonds, then you need to open an investment account. It might sound complicated at first, but don’t worry, it’s not so hard as you think!
And I’m here to help.
As you probably already know, a brokerage account is an investment account where you are able to deposit money. This last is used to buy stocks, bonds, investments, and mutual funds.
Nervous about investing? From my personal experience, investing money in the stock market is much more beneficial than saving cash in a low-rate savings account, which is actually risky due to the fact that you might lose purchasing power to inflation.
In this article, I will share with you what I know about different types of investment accounts, how to choose one effectively, and how to open a brokerage account easily.
Types of Investment Accounts
Several types of brokerage accounts exist, and the right one for you depends on your investing goals, what kind of investments you are planning to purchase, and how much help you think you need to manage your investments.
Online Brokerage Account:
This is an online investment account working with an online brokerage. You are therefore able to purchase and trade investments online and on your own. If this is the kind of investment freedom you are looking for, then an online brokerage account is the best for you.
If you are interested in opening an online brokerage account, I advise you take a look at the best online brokerages I picked for you, and which include the following: Ally Invest, Merrill Edge, E-Trade, Trade Station, Charles Schwab, Interactive Brokers, and Robin hood.
Full-Service Brokerage Account:
As its name indicates, this brokerage account offers full management of your investments, either from a human advisor or a robot-advisor.
This last is way cheaper than a human investment advisor. Robot-advisor offers its services using computers to manage your investments based on your goals. My top picks for robot- advisors include Betterment, Ellevest, Wealth simple, Vanguard, and Wealth front.
Retirement Brokerage Account:
This type of brokerage account is specifically designed for you to save some cash for retirement, and the best part of it is that it’s tax-advantaged.
Thus, I recommend you open an IRA or an Individual Retirement Account, which takes just 15 minutes from your precious time. Best IRA providers are the following: Merrill Edge, E-Trade, Betterment, Sofi, Vanguard, T.RowePrice, Ally Invest, and Charles Schwab.
Choosing a Brokerage Account
Once you’ve made up your mind about what brokerage account you want, you will need to choose an account provider. From my experience, I advise you to look for one with a minimum or no account fees.
You would also need to check the broker charges for the investments you want to buy. To illustrate, if you are willing to trade stocks, you would want to look for a low-trade-commission broker. However, if you want to invest in mutual funds, look for a broker that has no transaction fees and no commissions.
As already mentioned above, if you are not interested in managing your own investments, look for a suitable robot-advisor which will do the work for you for a low annual fee.
Opening a Brokerage Account
Opening a brokerage account is easier than you think it is. In most states, you would need to be 18 to open an account, but don’t worry your parents can still do that for you if you have your permission!
You will have to deposit some money once you’ve opened your investment account. The funds’ transfer process can take a few days to a week. Once it is successfully complete, you can begin your investing journey.
You might be offered to open a margin account or a cash account. A margin account allows you to borrow money from your broker to trade, but it is important to know that it is risky and you will have to pay interest. I would recommend you start with a cash account.
If you are saving your money for less than two years, than skip the brokerage or investment account and consider short-term investments options. In this case, you might want to look for banks or credit unions that offer good interest rates.
Here are the best market accounts that I came across: Capital One, Marcus by Goldman Sachs, Barclays, Synchrony, Discover Bank, TIAA Bank, and Pure Point Financial. These last offer a 2% annual interest rate. This doesn’t sound like much until you compare it to the national average interest rate on savings account and which equals 0.09%.
Keep in mind that money market and the savings accounts are both FDIC insured. Therefore, your money will stay protected in case of a bank failure.
Of course, any and all of these options can be the right option depending on what you expect to do and make with your brokerage account. The important to keep in mind is that it takes a lot of experience and information to really capitalize on opening a brokerage account.
While you could certainly by great at playing the market, remember that it’s not going to happen overnight. After all, it didn’t happen all at once for me!