The question to ask yourself before opening a brokerage account
- Investment professionals Ashley Tran and Kenneth Chavis IV joined the Insider’s Master Your Money Clubhouse event.
- They discussed DIY investing and offered tips for newbies using online brokers.
- Both experts recommended that you be confident in your “why” and your goals before investing.
- This article is part of a series focused on Millennial Financial Empowerment called Master Your Money.
If you are thinking about investing in your own hands, you are not alone.
2020 has been an important year for new DIY investors (also known as âretail investorsâ). Among investors who opened brokerage accounts in 2020, 66% had never had a taxable investment account before, according to a study by the FINRA and NORC Foundation at the University of Chicago.
But DIY, or self-directed, investing through online brokers is different from other options you might use, such as full-service financial companies or automated advisors.
At a recent Insider Clubhouse event, “DIY Investing for Beginners” – part of our Master Your Money series presented by Fidelity – speakers Ashley Tran, Fidelity Investment Solutions Team Leader, and Kenneth Chavis IV , Certified Financial Planner at LourdMurray, emphasized why it is important to start with a goal or objective before starting to invest through an online brokerage account.
Choose a goal before choosing a security to invest in
âIt can feel really overwhelming when you start to dive into investments,â Tran said at the event. “The first piece of advice I would give is this: make sure you feel really educated and confident about what you are investing in and why.”
She recommends starting with a goal first for your account and your money. Goals, Tran added, could include retirement, saving for a house, or creating an emergency fund.
When it comes to investments, you will have several options.
âThere are a lot of different things you can buy in the market,â Tran said. There are stocks, she continued, that are like a share of a company’s equity, as well as mutual funds and exchange-traded funds, which she described as baskets of securities. that give you exposure to many different companies with one thing in common. .
Chavis added that your investment portfolio can change depending on the time horizon you envision, which means you can invest in more or less risky securities depending on when you think you need to access your money. .
Investment taxes can vary depending on how long you hold an asset
Once you have your “why” – or why you are investing – you will want to consider the tax implications of trading.
“For people who really want to play the stock game [or] maybe getting your feet wet and doing a fair amount of trading, both buying securities and then selling them, there are tax implications for that, âChavis said.
He distinguished between two different types of taxes that retail traders may face:
- Short-term capital gains taxes: âIf you buy a position and hold it for less than a year, you’ll be subject to what’s called short-term capital gains,â Chavis said. This essentially means that you would pay the same tax rates as any other regular income.
- Long-term capital gains taxes: âFor any position held for more than a year, you get preferential tax treatment, known as long-term capital gains,â Chavis said. “These rates depend on your income level.”
For most everyday investors, buy and hold investing is the best way to build long-term wealth – and it doesn’t involve frequent transactions.
The best time to start investing is today
If you’re new to self-directed investing, this can be a daunting feat. But Tran and Chavis both pointed out two sentiments: (1) The best time to start is now, and (2) There are several resources you can take advantage of to learn more.
âIf you’re feeling overwhelmed or unsure, just find a place to start learning more about how to manage your money and start investing,â Tran said. âPick up a personal finance book,â she added, or find a money blog or podcast that you think resonates with you.
âThe best time to start investing is still today,â said Chavis.