Why is it important to choose the best brokerage account?
Yes, the brokerage account you choose does matter. Successful investing is going to require you to work with a brokerage account that matches your goals and investing style.
Thanks to modern technology, it's never been easier for the average person to get started with investing. You’re probably reading this article because you’ve seen so many different brokerage options and you don’t know where to start. But don’t worry!
We understand that the vast variety of brokerages available may be intimidating. So in this article, we’ll break down how you can choose the best brokerage account for you and your goals.
What is a Brokerage Account
First, let’s go over what a brokerage account is just so we’re all on the same page.
A brokerage is a taxable investment account that allows you to buy and sell securities. “Securities” is just a fancy word for an investment that can be traded to earn money. That’s why sometimes people call a brokerage account a “securities account.”
Some securities you can trade in a brokerage account include:
You can transfer money in and out of a brokerage account just like a regular bank account. But the difference is that brokerage accounts give you access to the stock market and other investments.
How To Choose The Best Brokerage Account
Step 1: Identify what you’re looking for
Everyone is going to be looking for different types of accounts depending on their specific goals, their learning style, and their investing style.
You can ask yourself these types of questions to narrow things down:
What are my investing goals?
Do you want to build wealth for retirement? Do you want to replace your income? Do you just want extra passive income from dividends?
Remember, as you learn more about investing, your answers may change over time. So when assessing your goals, you don’t need to know everything right away. The best thing to do is just start and readjust in the future if you need to.
Am I a beginner investor? (Be honest with yourself)
Do you just want to learn the ins and outs of investing? Are you looking for an app that’s easy to navigate? Do you want to have easy access to news and charts for the business you’re investing in?
There is no shame in choosing a brokerage just because it's a “beginner app.” If it works for you, then it works for you.
Do I want to day-trade?
Day trading usually means you’re an active investor, which will require more time out of your day. So, ask yourself, are you looking to eventually replace your 9-5 job? If so, just remember that day-trading is notorious for high risk.
Am I a passive or active investor?
Do you want to look at your brokerage app every day? Or do you just want to invest in some reliable companies so you don’t have to check on your account every day?
Are you looking to trade more advanced securities like Options?
Learning to trade Options right away might sound intimidating but maybe you plan to learn down the road. In this case, it would be wise to look for a brokerage account that allows you to trade Options as well as stocks.
Step 2: Find who offers what you’re looking for
Now that you have a criteria, you can begin your research. When doing your research here are a few things to keep in mind:
What users are saying about them
Remember earlier in 2021 when everyone was buying shares of Gamestop? There were some brokerages that had to restrict trading because they couldn’t handle the high volume of trades to execute. To some, this may be concerning. And to others, the whole Gamestop craze didn’t affect their investing strategy at all.
So some of you may want to consider choosing a larger institution that has a history of being able to handle large influxes of trades like with GME back in February 2021.
Most online brokerages don’t charge commission fees on individual stocks anymore. Some brokerages charge commission fees for other securities like Options, Mutual Funds, ETFs, Cryptocurrencies etc.
For example, Robinhood is committed to a no trading fee name so they don’t charge fees for trading Options. Whereas TD Ameritrade charges a 0.65 cent fee for each options contract.
Tools and Educational Features
Tools and educational features will have an affect on your day-to-day satisfaction with your brokerage account.
If you’re new, you may want to look for a brokerage that offers news and educational resources on the account. But for some, you may prefer to use third party resources for your research on a company.
Another feature to look out for is fractional shares. For some this may be a make or break offer because it allows you to purchase a portion of a share instead of the entire share. For example, a share of Google is currently worth $2,491. If you have fractional shares and can’t afford to buy an entire share, you can just invest $100 into Google instead of the full $2,491.
For day traders, you may want to look at a brokerage like TD Ameritrade which offers a feature called “Thinkorswim.” A platform specifically made for traders.
I’m sure we can all agree that insurance is by far the sexiest topic on the planet. Just kidding…
But why is it important when looking at brokerages? There is something called SIPC (Securities Investor Protection Corporation) which protects you against the loss of cash and securities in case your brokerage goes bankrupt.
It’s important to know this just so you’re aware of how you’re protected and so you can make sure that the brokerage you choose is in fact SIPC protected.
Here’s a little recap of what we learned today.
If you want to choose the best brokerage app, you will first need to define your goals.
After you define your goals, research brokerage accounts based on what will suit your needs.
When assessing different brokerage options, make sure to look at factors like commission fees, insurance, reputation, and what tools they have to offer.
Now, Just Get Started
Q: You know what’s worse than choosing the wrong brokerage account?
A: Not getting started at all...
At the end of the day, a profitable investing strategy is going to require experience. You’re bound to make a mistake at some point. Whether it's big or small. And every investor knows that one of the biggest assets we have is time. So the earlier you start, the better your investing experience will be.
So, don’t let your fear of messing up stop you from getting started at all.
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