How to open your first brokerage account

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If you want to start investing but don’t know where to start, chances are you’ve spent some time Google researching “how to set up a brokerage account”.

So what is a brokerage account anyway? And what does it mean to open one?

A brokerage account gives you access to the stock market, allowing you to buy and sell stocks, bonds, ETFs and mutual funds with the aim of building your wealth (while taking risks).

Brokerage accounts are offered by large financial firms like Charles Schwab and Fidelity, as well as online brokers like Ally Invest. Brokers essentially act as intermediaries between you and your investments. They hold the money you use to buy investments and can execute trades on your behalf. Many brokers also offer users a full investment planning service, ranging from personalized advice to market information.

Unlike a retirement account, like your 401 (k) or IRA, you can access the money you invest in a brokerage account at any time – you don’t have to wait until you’re 65. But new investors should know that you can pay taxes on your income. When you sell a stock and want to withdraw your earnings, you can do so at any time, but during tax time you will have to pay taxes on the income or dividends you earn. This is why brokerage accounts are often referred to as “taxable accounts”.

Here are the basics that everyone should know when opening your first brokerage account.

What to expect when opening a brokerage account

You don’t need a lot of time or money to open and fund a brokerage account. Opening a new online account can take around 15 minutes. Typically, you will complete an online form providing information about your job, net worth, assets to invest, investment goals, as well as basic information such as your driver’s license and social security number. .

To fund your account, you will need to transfer money from a linked bank account, such as your check or savings. You can also transfer money, deposit a check, or transfer investments from another broker.

The broker may ask you if you want a cash account or a margin account. A margin account acts almost like a loan where the broker lends you money to make trades and you pay interest, while a cash account means you fund your account with your own money.

Investors can have as many brokerage accounts as they want, and there is no limit to the amount you can deposit into your taxable brokerage account each year.

What to watch out for when opening a brokerage account

Pay attention to fees when opening a brokerage account. Brokers are paid through commissions, although many now offer commission-free transactions for stock trading. Brokers offering free stock trading include TD Ameritrade, E * TRADE, and Vanguard. But often times you will be billed for other things like management and advisory fees. Also, be sure to note any costs associated with trading outside of stocks, such as mutual funds, ETFs, bonds, and options.

Most brokers do not have minimum deposit requirements to open an account. However, you may need to meet a minimum to make investments, such as buying a minimum amount of shares to invest in an index fund.

What if you don’t know much about investing?

If you are overwhelmed with the idea of ​​investing, consider a robo-advisor platform instead. Investing on your own through a brokerage firm requires that you at least know the basics of how to choose the right stocks, bonds, or funds. With a robo-advisor, you can achieve a well-diversified portfolio through algorithms that consider the best investments based on your financial goals.

SoFi Invest®, for example, offers to automate investing, and you don’t need to reach a minimum deposit or maintain a certain balance. SoFi also sets itself apart by allowing you to participate in company IPOs as well without minimum fees.

If you like the idea of ​​a robo-advisor but feel more comfortable knowing that there is a real financial advisor you can talk to when you need them, consider Betterment. Signing up for Betterment’s premium plan gives you unlimited access to a financial advisor. If you are not a premium member, the one-time consultation fee for an advisor ranges from $ 199 to $ 299.

At the end of the line

Creating your first brokerage account is an exciting step in your investment journey. You can really start building your wealth by placing your money in the market where it grows in part through compound interest.

But before you get into investing, you’ll want to take a look at your overall financial situation. Make sure your debt is under control (especially high interest credit card debt), you invest in a retirement account (and meet any 401 (k) match employer), you have an account. emergency savings and – this is crucial – you understand the risks and still feel comfortable investing.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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