What is a brokerage account?
A brokerage account is a taxable investing account that allows you to trade stocks, bonds, and other assets. You can open these accounts with banks, robo-advisors, or online brokers, and you generally don’t need a large upfront deposit to get started. Opening the best brokerage accounts in the United States can be your gateway to the dynamic world of stock trading.
Types of investment products
Within your brokerage account, you can buy and sell various investment products, catering to those looking for the best way to buy stocks or explore diverse assets.
Stocks
When you invest in stocks, you’re buying the shares of a public company. There are thousands of stocks to invest in, such as those listed on the S&P 500, Nasdaq, and Penny stocks. The prices of these stocks will change depending on supply and demand and how the public feels about the stock or company.
Investing in individual stocks can be risky but has the potential for large returns. A major benefit of stocks vs. many other investments is that there’s often no management fee to worry about, making it an attractive option for users of the best stock trading app.
Exchange-traded funds (ETFs)
An exchange-traded fund (ETF) is an investment fund where a group of investors pool their money together to buy various securities. Each ETF will be made up of several different investment products, including stocks and bonds. As a result, buying ETFs can be an easy way to diversify your portfolio, appealing to users of best trading platforms.
ETFs are traded on an exchange like stocks. Some ETFs will be 100% stocks for potentially better returns (but much higher risk), while others may be 80%, 60%, 40%, or even 20% stocks, with the level of risk gradually reducing in proportion to the portion of stocks included in the ETF.
Mutual funds
Another investment product to consider from online brokers is a mutual fund. Mutual funds pool together money from a collection of investors, and then use those funds to invest in different assets. These are managed by a fund manager who chooses what securities the fund will invest in.
Mutual funds can offer a diversified portfolio, and can be suitable for those who don’t want to decide on their own specific investment strategy. Some mutual funds can have relatively high fees, but those looking for a similar product with fewer expenses involved can consider index funds, which are low-fee and designed to track the returns of a market index, such as the Dow Jones.
Bonds
A bond is when an investor loans money to either a company or the government, and is paid a stated interest rate over the course of the loan. The bond sets forth the dates of repayment and interest attached. Bonds are sometimes used by lenders as a measure for periodic adjustment of interest rates of loans, including mortgages.
Certificates of Deposit (CD)
A Certificate of Deposit (CD) is a product where you keep a fixed amount of money in a savings account at a bank for a set period of time without touching it. Once the set period ends (whether that is three months or five years), you get the money back, plus interest.
The interest rates for CDs may not earn as high a profit as other forms of investments, but they are considered to be a low-risk investment with fixed interest rates known at the time of deposit. CDs are commonly used for people to invest funds that they don’t need access to for the next few months or years.
Online Brokers vs. Traditional Brokers
When choosing a brokerage, you have two main options: online brokers and traditional brokers. Online brokers, often seen as the best way to buy stocks, offer convenience and usually lower fees. They are ideal for self-directed investors comfortable with making their own decisions. Traditional brokers provide personalized advice and are suited for those who prefer a more hands-on approach.
Benefits & disadvantages of opening a brokerage account
There are plenty of reasons to consider opening a brokerage account, especially when exploring the best investment platforms. First of all, working with an online stock broker is incredibly convenient. Many allow you to access your accounts online or through an app, making them contenders for the best stock market app. Transferring money in and out is quick and easy. Usually, accounts also offer great liquidity, if they allow you to sell assets and withdraw the profits at any time.
Brokerage accounts provide you access to thousands of investment products, and investing in these products could provide much better returns over time than a traditional fixed-interest savings account. Most have no contribution limits, no income limits, and fewer rules and restrictions than retirement accounts like a 401(k) or IRA.
Another major benefit is the flexibility of a brokerage account. Some investors may use it to bolster retirement savings, while others may use it to work towards a down payment or other large purchases. You get full control over how much you invest, what you invest in, and how long you invest.
Many online trading broker accounts may offer investment research tools to improve your knowledge and give you the motivation to try out different strategies, ideal for those using the best trading app for beginners.
What to consider when investing
When investing, there are a couple of things you should consider to ensure you’re making the right choices.
Age/investment horizon
Your age and how long you have to invest can influence your choices. If you are older and nearing retirement, you may want to cash out your investments sooner rather than later, and in such case you should consider how much risk you are willing to take. Those who are younger may feel more comfortable in risking some short-term loss for long-term gain.
Investing Strategies for Different Life Stages
Starting Out (Ages 20-30)
In your 20s, time is on your side. Consider starting with a robo-advisor for a hands-off approach or use the best trading app for beginners to get your feet wet. At this stage, focusing on stocks and ETFs can be a smart move, as you have time to weather market fluctuations and aim for higher returns. Think about contributing to a 401(k) or an IRA to begin building your retirement savings early.
Building Wealth (Ages 30-50)
This is your prime earning period. You might want to start diversifying your portfolio through mutual funds or bonds, in addition to stocks. Using one of the best stock trading platforms can help you manage a more complex portfolio efficiently. Consider balancing higher-risk investments with more stable ones, keeping in line with your risk tolerance and investment goals.
Pre-Retirement (Ages 50-65)
As retirement approaches, it's wise to shift towards more conservative investments. You might want to move some of your assets into bonds or certificates of deposit (CDs), which offer more stability. Reviewing your portfolio with a financial advisor and adjusting your strategy with the best investment platforms can be beneficial in ensuring a comfortable retirement.
Retirement (Ages 65 and Up)
In retirement, your focus should be on preserving wealth and generating income. Investments like bonds and dividend-paying stocks can provide a steady stream of income. It's important to monitor your investments and adjust as necessary, but with a more conservative approach to protect what you've earned.
Your risk tolerance
It is worthwhile to consider your risk tolerance in advance before investing together with your investment goals. Those who aren’t comfortable with risk may want to avoid investing in assets considered as volatile like cryptocurrency and may instead prefer products that involve diversified portfolios or pre-defined interest payments.
Navigating Market Volatility
Investing always comes with risks, especially when it comes to stock trading. Market volatility can be unsettling, but it's a normal part of investing. Here's how you can navigate these challenges:
- Stay Informed: Use the best stock market app to keep track of market trends and news.
- Diversify Your Portfolio: Don't put all your eggs in one basket. Diversification can help mitigate risk.
- Think Long Term: Avoid making impulsive decisions based on short-term market movements. Remember your long-term investment goals.
- Consult Professionals: If you're unsure, consulting with a financial advisor can provide clarity and direction.
Investment goals
The goals you have, and what you want from your investments, can dictate how you invest. Some people may want to make multiple daily trades in stocks, while others are comfortable with long-term investments which could potentially bring slow and steady growth over time.
Both are viable, but you need to have your goals in mind from the start so you can buy the right products to help you reach them.
Your personal finances
Your own budget, your savings, and how much you earn should be considered before investing. Some people can afford to invest hundreds or thousands each month, while others may be a little more restricted. Also, some investments (like real estate) may only be options for those with a large amount ready to invest.
It’s advisable to only invest money you can afford to lose. The last thing you want to do is end up investing the money you need for rent or groceries, so always try to keep track of what you can afford. You can always consult an investment adviser to help you determine your budget and risk appetite.
How to invest in a brokerage account
If you want to get started with investing in a brokerage account, there are a few steps you’ll need to take.
1. Find the right brokerage
The first step is to find the right brokerage to work with. There are many companies in the brokerage business, so you have options. You can open an account with a traditional bank, choose a full-service broker, or choose an online discount brokerage.
There’s no right or wrong answer, and your choice depends on your investing goals, your experience, and how much assistance you
want. While some may look for the best, fully-featured day trading platform, others might want a straightforward online brokerage with only basic features included.
Also, make sure to do research on the firm you’re considering to ensure it meets your needs in terms of fees, available products, and more. The best online brokerage for one person won’t automatically be the best for the next.
2. Sign up/apply
Once you’ve chosen the trading platform suitable for your needs, you need to apply. Most brokerages allow you to fill out an online application to sign up. These rarely take more than 15 minutes and are usually easy to follow.
You’ll normally need to provide your personal information, your social security number, your employment information, your financial information, and your investment objectives. In some cases, you may be able to access your account instantly, while others may take some time as the company verifies your identity.
3. Fund your account
Next, you’ll need to add funds to your account in order to invest. Most platforms make this easy as you can link your bank account directly to the brokerage account. This lets you move money in and out whenever you see fit.
4. Choose your investment
Once your account is funded and you’re all set up on your chosen stock trader app or platform, it’s time to choose your investments. Whether you already know what you want to invest in, or want to check through available options, most brokerages make it easy to complete your first trade and you can consult a professional for investment advice before making a decision.
Conclusion
If you want to build your wealth and save for the future, a brokerage account is worth considering. These convenient accounts provide a ton of flexibility to transfer funds in and out as you please, in addition to letting you invest in many different products, without having to worry about contribution limits.
Most are free or very affordable to open, and the process for getting started is straightforward. Whether you’re saving for retirement, building up a down payment, or wanting to try your hand at day trading, a brokerage account has a lot to offer.
Investing is a journey that evolves with your life stages and goals. Whether you're just starting out or are a seasoned investor, there's always a strategy that fits your needs. Utilize the best trading platforms and stay informed to make the most of your investments. Remember, the key to successful investing is a well-thought-out strategy aligned with your life stage and goals.
Disclosures
Sofi
¹Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customers receiving $1,000 is 0.028%. See full terms and conditions.
Interactive Brokers
²Member SIPC. Restrictions apply. for more information see ibkr.com/info
eToro
³eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
Disclaimer:
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.Take 2 mins to learn more.
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Copy trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong.Take 2 mins to learn more.
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Robinhood
⁴Terms apply All investments involve risk and loss of principal is possible. The bonus applies to eligible assets transferred from an external brokerage account into your Robinhood non-retirement brokerage account within the limited time offer period. To keep the bonus, you must keep the money you transfer into Robinhood in your Robinhood individual brokerage account for at least 2 years. The Robinhood ACATS Bonus Offer is not a recommendation of any investment or investment strategy, and is not a recommendation that a customer transfer assets into a Robinhood Brokerage Account. Robinhood reserves the right to change the offer terms or terminate the offer at any time without notice. The offer is not transferable, saleable, or valid in conjunction with certain other offers and is available to U.S. residents only. The offer is only available for personal use, and may not be used for commercial purposes.
Stash
⁶Nothing in this material should be construed as an offer, recommendation, or solicitation to buy or sell any security. All investments are subject to risk and may lose value. This information is for educational purposes only and should not be construed as tax, investment, or legal advice.
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J.P. Morgan
⁵When you open and fund a J.P. Morgan Self-Directed Investing account (retirement or general) with qualifying new money by 01/22/2024. Options contract and other fees may apply.
⁷INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
