4 tips for opening your first brokerage account
The money you have in a savings account may not increase very much. That’s because savings accounts don’t always earn the most interest. On the other hand, if you were to invest the money you don’t need for emergencies or short-term goals, you will have the opportunity to grow it into a much larger sum.
If you’ve never used a brokerage account before, you might be overwhelmed with the choices available to you. Here are four tips to consider when making your decision.
1. Determine what you want to invest in
Deciding which assets you would like to own will help you find the right brokerage. Some brokerage accounts, for example, do not allow you to buy cryptocurrency. If it’s something you want to invest in, you’ll want to find an account that allows it. Otherwise, if you’re sure to stick with stocks, bonds, and mutual funds, it doesn’t matter that a given brokerage doesn’t offer crypto.
2. Determine what you want to invest in
If you’re investing money that you want unrestricted access to, it pays to put your money in a traditional brokerage account. But if your investment goal is to build a nest egg for retirement, you might want to open an IRA.
IRAs come in two varieties – traditional and Roth. Both choices come with their own tax breaks. Traditional IRAs allow you to make contributions with non-taxable dollars, so if you put $5,000 into one, that’s $5,000 of income that the IRS may not tax you on, depending on your income.
Meanwhile, Roth IRAs allow for tax-free investment gains and withdrawals. Both accounts, however, require you to leave your money untapped until age 59.5, so if you think you’ll want the option to cash out your assets sooner, then an IRA may not be the place. Good choice.
3. Determine how much you need to invest
Many brokerages don’t have minimum balance requirements, but some charge fees if your balance gets too low. Of course, you can always avoid these brokerages altogether, but some may offer other benefits that may make them useful. Calculate how much money you have to open a brokerage account and how much you intend to keep putting into that account.
4. Pay attention to fees – and avoid as many as possible
Some brokerage accounts charge a fee each time you make a trade. For the most part, these are accounts you should try to avoid, as these fees could pile up and eat away at your returns. There are so many options today for commission-free trading that it rarely makes sense to get charged in this area.
That said, some brokerages charge other fees, such as an inactivity fee for leaving your account inactive for too long. Learn about the different fees and compare your choices.
Opening your first brokerage account doesn’t have to be a daunting task. Use these four tips to make the process smoother so you can launch your investing career.
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