Since starting this blog, I’ve been preaching the importance of investing for the future without realizing that I might have been putting the cart before the horse. I was so focused on discussing the benefits of investing, I forgot to provide some critical information: how to actually open an investment account!
The idea for this post is courtesy of a reader who recently went through the process of opening an investment account. In the beginning, they were a bit intimidated by the process and didn’t necessarily know what to expect. I’ll be the first to admit, the world of personal finance can be rather intimidating (it often seems like some of the terminology was created with the intent to confuse!). However, after successfully opening their account, the reader noted that the whole process was much easier than they had initially thought!
I’m hoping for this post to serve as your guide to opening your very own investment account so you can start investing for your future!
Where Can You Open an Investment Account?
Long-gone are the days of middle-aged, suit-donning men shouting at one another while frantically waiving customer trade orders above their heads in search of a buyer or seller (seriously though, that’s how it used to happen). With the intervention of technology, there are plenty of online companies that allow you to open an investment account with just an internet connection. These companies are often referred to as brokerage firms because they are handling the execution of your trades and “brokering” your orders.
A quick Google search returns dozens of investment brokerage firms that will allow you to open an investment account. While there are several out, a small handful of well-known brokers (Charles Scwhab, Fidelity, TD Ameritrade, and E*Trade) control the majority of the retail investor market-share (retail investors are investors like you and me. Investment companies and other organizations can be found on the other end of the spectrum and they are often referred to as institutional investors).
Choosing The Right Investment Brokerage Firm for You
Before choosing a brokerage firm, you should first identify what criteria you consider important.
Over the last year, there has been a race to the bottom when it comes to commissions on most investment options. Historically, a brokerage firm would charge anywhere from $4.95 to $9.95+ per trade! Thankfully, those days are gone. Nearly all brokerage firms now offer commission-free trades on the majority of U.S. stocks and ETFs (ETFs are incredibly useful, but they are a topic for another day). Therefore, shopping around based on price alone won’t help you narrow down the contenders (there are still pricing differences between brokers if you trade options. However, if you are opening your first-ever brokerage account, I strongly suggest that you do not trade options as it involves significantly more risk than trading stocks and/or ETFs).
Depending on which broker you decide to use, the amount of stock news, financial information, and stock market data available to you is going to differ. Some brokers boast about their robust research platforms to help you make investment decisions. Others have lackluster research capabilities that would leave investors less than impressed. If you are going to be hand-picking the stocks you buy, having a well-developed research platform is certainly going to be something you value. On the other hand, if you are simply going to be purchasing index funds, you probably don’t really care about all the fancy research tools.
One of the most important aspects to consider when choosing a broker is the user interface. You want to be able to easily navigate the site without fumbling through different headers while trying to locate your recent order activity. When it comes to layout, each broker is going to have the page designed slightly differently. Since it can be difficult to get a feel for the interface before opening an account, I would suggest heading over to YouTube to catch a glimpse of what each broker’s interface looks like. By watching a few videos, you should be able to tell which interfaces you like and which you don’t.
Take Advantage of Reviews
While Nicole and I currently use Ally Invest for our taxable investment acccout, I have tried several different brokerage firms over the years. While I would love to write some reviews in the future, there are sources out there that have written much more thorough reviews than I would be able to currently. Nerd Wallet rates and compares 11 popular brokerage firms on their site and Investopedia gives their take on the best online brokerage firms too.
Once You’ve Decided on a Broker
After you’ve done your research and decided on a broker, it should be smooth sailing the rest of the way. The application to open an investment account is relatively easy to complete. It asks for your personal information, address, employment information, financial information, and sometimes your trading experience too. Most brokerage firms allow you to complete your application electronically too. After you’ve submitted your application, you should receive an approval notification and then you can fund your account!
Your Decision Isn’t Permanent
Even though choosing the right broker for you might seem like a big decision, please do not stress. If you find that you don’t like something about your broker, you can always change. It is typically pretty easy to transfer an entire account from one broker to another. The transferring broker may charge a fee to process the transfer, so be sure to investigate it beforehand.
What other tips and information do you have for people who might be looking to open their first investment account?
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