If you want to invest beyond your basic 401(k) or Roth IRA, you are going to need to open something known as a brokerage account.
You need to consider not only the type of brokerage account, but also the firm in which you establish a relationship. Make sure that you’ve made the best decision to open it. Therefore, you are so ultimately happy with the decision you make.
Choose Full-Service or Discount Broker
There are two kinds of stockholders, namely traditional broker or full-service broker and discount broker. Traditional broker or full-service broker provides you to work with someone who will become your sounding board. In addition, he/she also answers your phone calls and places trades for you.
This person may recommend investments or help you do things such as setup UTMAs for your children to gift them shares of stock.
For this service, you will be charged commissions that are typically several times the cost of a do-it-yourself trade at a discount broker.
The full-service broker and the firm that employs him or her most likely generate considerable profits from this sort of trading activity. For example, your full-service broker might offer you a list of potential investments based upon your preferred investing strategy (e.g., if you like stable companies that have increased their dividends every year for 25 years.
In contrast, a discount broker provides tools for you to trade yourself. You handle the buy and sell orders. You have no one standing between you and your money if you want to do something dumb, including selling out during a panic or buying on margin during a boom.
This can be ideal because you don’t pay for services you don’t want or need. For example, an E-Trade brokerage account is a discount brokerage account. Some brokerage firms offer both traditional and discount brokerage accounts to investors. Therefore, it allows them to select which works better for their situation.
Brokerage Account Minimums
There are different opening balance requirements. Some brokerage firms will set a minimum at $1,000, $2,000, or more.
Others may allow you to open an account with a smaller amount of money as long as you agree to regularly have money deposited, often on a monthly basis, from a linked checking or savings account.
Brokerage Account Services, Perks, and Tools
With full-service brokers, this is somewhat less important to discuss because you presumably have access to the broker himself or herself, who can work with you to uncover a wide range of investment research and reports.
For discount brokers, on the other hand, the difference in offerings can be significant.
One card gives 1.5% in cashback instantly on all eligible purchases. The other allows you to convert American Express rewards points into cash deposits at Schwab.
Certain brokerage accounts at certain brokerage houses will be able to invest commission-free into certain select securities. It is including mutual funds, exchange-traded funds, and index funds.
For small investors working on a shoestring budget, this can be a great way to save money.