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How to Open a Brokerage Account in 4 Easy Steps

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How to Open a Brokerage Account in 4 Easy Steps

As you stretch out on the couch to binge-watch your Netflix guilty pleasures, it dawns on you: You’ve paid off most of your debt. You’ve done a great job at saving. You have a 401(k) that’s inching its way toward respectability. Now, maybe it’s time to set your sights on investing in the stock market beyond your 401(k).

To do that, you’ll need a brokerage account. While that may sound daunting if you don’t know how to open a brokerage account, don’t let it intimidate you. You can have one up and running in no time, and guess what? You won’t even have to leave that comfy couch to do it.

What Is a Brokerage Account?

A brokerage account is an account where you can put money that you want to invest. You can open a traditional or Roth IRA if you’re investing for retirement or a taxable investment account.

You can choose to invest your money in stocks, bonds, mutual funds and more. From there, you work with the licensed brokerage firm that actually invests your money for you. The firm acts as a middleman between investors and sellers. 

How to Open a Brokerage Account in 4 Simple Steps

If you’re ready to open a brokerage account, follow these four steps to start investing in no time.

1. Decide How Much Investment Help You Need

Not all brokerage accounts are equal. Some come with all the bells and whistles including a personal financial adviser. Others follow a more DIY approach. Step one to opening up a brokerage account is to do your research and find out which type will be a good fit for how you want to invest. 

Here are two basic types.

Managed Account

A managed account is a type of brokerage account that comes with some investment management. That means that either a human financial adviser or a robo-adviser will help to manage your accounts. 

Pros

As the market fluctuates, account managers can make changes in your investments to maximize your gains and minimize your losses based on your predetermined preferences and risk tolerance. Like it or not, they probably know more about the market than you do.

Cons

Those advisers are not free. The average fee for a human financial adviser is about 1% of the managed assets, i.e. your money, up to the first $1 million dollars invested. It may not seem like much, but that eats into your profits a bit.

Discount Brokerage Account

If you have studied up and you’re ready to take on your investments on your own, you may want to sign up for a discount brokerage account. You can still invest in the same products. You just need to be prepared to make your own choices, though some discount brokerages offer robo-advisers.

Pros

You keep that percentage. Some online brokerage accounts may charge a fee for each trade you make, but many of them don’t do that anymore. The online competition is stiff, so you really want to shop around.

Cons

You’ll have to learn how to navigate the website, which in some cases can be a bit daunting. You’re also on your own in choosing your investments. 

2. Find an Investment Account That Works for You

Once you’ve decided if you want to go the managed or online route, it’s time to find the account that is the best match for you. As you shop around, here are a few things to consider:

  • Minimum balance: How much are you planning to invest? Some accounts have a minimum balance requirement. Make sure you find one that will fit comfortably with the amount you are willing to invest. 
  • Research and education tools: If you’re looking at an online account, do you want it to have tools to help you learn more about investing and research the best investments out there for you? 
  • Fees: Keep your eye open for fees. These companies need to make money somewhere. You want to be sure that it’s not coming out of your account in ways you didn’t expect. 
  • Ease of use: Play around on the firm’s website to get a feel for how easy to use it is. Your money is at stake, you want to be comfortable with your brokerage account.
  • Human vs. robo-adviser: Do you like the idea of a robo-adviser running all of the algorithms to keep your account at peak performance, or do you prefer a more personal touch? 

3. Apply for Your Brokerage Account

You’ve done your due diligence. You’ve figured out how to open a brokerage account. You’ve found the account that is going to be perfect for how you want to operate. It’s time to hit the gas. Click on that “Apply now” button and get started!

Here’s what information you can expect to provide to get your account set up.

  • Personal info: Yes, they’ll probably ask for your Social Security number, address, phone number, and maybe a little about your financials and assets. That’s to be expected and it should be perfectly safe. 
  • Tax status: Are you a single filer? Married filing jointly? 
  • Risk tolerance: How adventurous are you willing to be with your investments? Bigger risks can mean bigger returns, but a higher chance of losing money, too.

4. Deposit Money and Start Investing

That’s it. Once you’ve done the research, picked your brokerage account and finished the application, it’s time to get to work. 

If possible, the best method to add money into your new account is to link your bank account directly to it. That makes it easy to move money back and forth. If you don’t like to link accounts, you can likely use a debit card or even a check. 

Investing can be a great way to grow your money. It is never foolproof, though. Understand that you are risking your money when you invest it, but you can also manage those risks. 

You’ve paid down debt and saved up money. Now it’s time to take the next step. Luckily for you, you won’t actually need to step away from the couch to do it. Binge away.

Tyler Omoth is a freelance writer covering topics from personal finance to career advice and even lawn care. His work has been featured on TopResume.com, Writersweekly.com and more. He is also the author of over 70 educational books for children and a proud parent of twin toddlers.

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