How to open your online brokerage investment account

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Are you thinking of investing in the stock market and need a little help getting started?  The stock market can be very confusing, overwhelming, and most of the time very unpredictable.  But opening a brokerage account shouldn’t be.

Unlike a checking or savings account, a brokerage is an investment account that allows you to invest in stocks, mutual funds, ETFs, bonds, and even advanced trading such as futures contracts if you qualify.

Most brokerage accounts can be set up online in less than 10-15 minutes.  To open an account, you usually do not need any money to do so.  But before you can trade, you must fund your account.  Funding can usually be done by transferring money from your checking, savings account, or by snail mail via a check for free.  You can also wire funds from your bank but fees will be accessed in doing so.

Below are a few examples of the common types of, but not limited to, accounts that you can open:

  • Individual Retirement Accounts (IRAs)
    • Traditional IRA
    • Roth IRA
    • Simple IRA
    • SEP IRA.
  • Taxable Brokerage Accounts
    • Individual Taxable Brokerage Account
    • Joint Taxable Brokerage Account

You can open as many brokerage accounts as you want and at any brokerage, you wish as long as you are 18 years of age or older.  There shouldn’t be a fee to open your new brokerage account.

There is a distinct difference in the types of accounts that you open.  A taxable brokerage account, or also known as a taxable account, offers no tax advantages for investing and is taxed as a capital gain in most cases.  A retirement account is a tax-advantaged investment account designed to be used for retirement savings.

The other notable difference between the two types of accounts is that there are no restrictions on taking your money out of the taxable brokerage account, but in a retirement account there will be restrictions on when, and how you can withdraw the money along with how much you can contribute each year.

Are you ready to start your new investing adventure?  First, you will need to decide if you want to manage your own investments, a managed account, or even a little of both.  If you manage your own investments, then there will not be any fees except for buy and sell fees (if any) and regulatory fees.  If you want help starting out or making decisions, then you might want to choose a managed account.  There will be fees associated with a managed account and will differ with each brokerage.

Your new account can be a cash or a margin account.  If you are new to investing it might be best to start with a cash account and you can avoid the pattern day trader (PDT) rules.  With a margin account, you are able to borrow money from the brokerage and pay interest on those trades, making it a higher risk, especially with new investors.  You may even want to consult a financial advisor before dipping into the stock market.

Once your account is funded, you are now ready to make your investment decisions.  You will need to decide on your investment goals, your time-frame for investing, and the risk that you are willing to take.

You will also need to decide on what stocks or funds you want to invest in.  If you have a long-term investment plan, then mutual funds, index funds, and ETFs will help you diversify your portfolio.  With index funds, they mirror the S&P 500, NASDAQ, or the Dow Jones Industrial Average depending on the index fund you invest in.  So, when those indexes go up, so does your investment fund.  However individual stocks can allow you to grow your money faster but that also comes with more risk. You also have the option to buy fractional shares to lower your risk and/or the amount you have invested.

As you can tell, there are a lot of different types of investments to choose from.  Some of them are perfect for beginners, while others need and require more experience.  But all of them will offer a different level of risk and reward. Once you get started you can learn more about dividends or also known a DRIP that will help you grow your account even more.

After you start investing you will quickly experience your risk tolerance.  It’s always a great feeling to see your stock or fund increase in value.  But when the stock market goes down, and so does your fund, you have to learn not to panic.  If you are prone to panicking you might want to start off investing conservatively or you might end up panic selling and take on losses that could have been avoided by waiting it out.  Or panic buying when you experience FOMO (fear of missing out).

This post is by all means not a complete list of “how to start investing”, but hopefully it helps you find your way.

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