Investing How Not to Be Broke With a Brokerage Account

Want to up your investing game? This type of account is key to building your portfolio.

By Adam Shell
PUBLISHED 01/03/2023 | 9 MINUTES

You don’t have to be a Wall Street day trader, meme stock fan or even a billionaire to benefit from a brokerage account. Working moms or young women launching their careers can also get a financial lift from this type of investment vehicle. 

What Is a Brokerage Account?

In a nutshell, it’s an account that allows you to buy and sell a bunch of different types of investments, such as stocks, bonds, mutual funds and exchange traded funds (ETFs). And unlike a savings account that only pays interest on the money you put in, a brokerage account gives your money the potential to earn a higher return and build a bigger cash stash for your future. 

If that sounds boring or you think you already have that covered with your 401(k), think again. Retirement accounts ding you with an early withdrawal penalty if you take money out before age 59½, while brokerage accounts offer more flexibility: You can use the money you saved in it whenever and however you want.

So having a brokerage account can be a key part of your investing journey—and experts say that having one is a great way for an individual to access the capital markets.

Large online brokerages, like Charles Schwab, E-Trade, Fidelity Investments and Merrill Edge, offer a full array of investment options. Fin-tech apps, such as Robinhood, also make opening an account easy for everybody.

How Do I Open an Account?

Once you’ve decided on a broker—more on this below—go to the brokerage’s website and fill out the online application (there’ll likely be an “Open an Account” link). If you’re single or opening the account for yourself, select “individual” account; if you have a spouse and want to open the account together, select “joint” account. 

You’ll need to provide personal information, such as your name, address, social security number and mobile phone number. This is normal, so don’t let it spook you—just make sure you’ve chosen your broker well.

Some brokerages also require you to fill out a “risk tolerance” questionnaire, which they use to determine if you’re a conservative investor or one willing to take more risks for a shot at bigger returns. If you’re a younger investor, you might consider taking a riskier approach, as you’ll have more time to weather any losses and let your money grow. If you’re older or are saving for something in the near future, say within the next five years, then a more conservative outlook is probably better, as you don’t have as much time to lose out on funds. 

Once opened, the next step is funding your account, which you can do via a bank transfer, check or by transferring funds from another investment account. Then, choose the investments you want to invest in, which could be anything from shares of Apple or Coca-Cola to a mutual fund (which can be a mix of stocks, bonds or other securities).  

Experts note that automating your deposits is a good way to build up your investment balance over time, even if you don’t have a large initial lump sum to put into the account. Plus, it takes overthinking out of the equation! Sometimes the best thing to do is just start.

How Do I Choose a Brokerage Account?

Just like determining your must-have amenities in a dream home or key safety features in a new SUV, there are important things to look for when shopping for a brokerage account.

  • Fees and Commissions. The lower the fees and commissions you pay on trades, the better. Why? It allows more of your invested dollars to be put to work in the market. The good news is low investment fees and zero-commission trades are now the industry norm, thanks to stiff competition among brokers vying for your business. So it’s possible to open an account with a zero account minimum—meaning $20 or $50 is enough to get started.

Tip: Steer clear of brokerages that charge pesky high fees. Usually, brokerages that allow you to open with a small account minimum won’t charge high fees. 

  • Investment Choices. The beauty of a brokerage account is that your menu of investment options is far greater than those you get in a 401(k)—which might give you a lineup of, say, 20 mutual funds. In general, brokerage accounts offer access to thousands of commission-free U.S. stocks, all types of bonds and thousands of no-load (e.g., commission-free) mutual funds or ETFs. Many brokerages even allow you to trade cryptocurrencies, like Bitcoin, as well as buy “fractional shares” of a stock (translation: you can buy half a share of Tesla if that’s all you can afford).

Many large financial institutions offer $0 commissions on U.S. online stock trades, “Stock Slices,” which let you buy fractional shares of any stock in the S&P 500 stock index (often for as little as $5), and you can typically buy and sell cryptocurrencies. T.D. Ameritrade, for example, offers over 40,000 bonds and fixed-income investments, including 3,000-plus bond mutual funds and over 400 bond ETFs. And E-Trade offers 4,000-plus no-load, no-transaction-fee mutual funds.

Tip: Having more investment choices provides greater opportunity to diversify.

  • Mobile Apps. Here, you’re looking for ease of use and the app’s ability to handle as many account-related tasks as possible. The best apps not only let you buy and sell stocks and other assets, but they also allow you to transfer funds in and out of your account, research investments, get real-time market updates and even pay bills. 

Tip: Find a brokerage that fits your lifestyle. Maybe apps aren’t for you, but if you’re on your phone more than sitting near a laptop, you should strongly consider it for convenience’s sake.

  • Tools and Research. Investing can sometimes seem overwhelming: Blame market volatility and the belief that only finance Ph.D.s can master managing money. That’s why picking a brokerage account that offers not only an array of investment tools but also calculators, investment screens, mutual fund analyses and educational information—such as videos and how-to articles—can make mastering the investing game easier. 

Look for tools that help you figure out if you’re saving enough to meet your retirement goals, if your portfolio is too risky for you to comfortably sleep at night or how much you need to save each month to amass $1 million by age 65. 

Having access to investment research also helps you evaluate the merits of a stock or fund investment. E-Trade, for example, offers research on equities as well as mutual funds research from fund-tracker Morningstar. 

Tip: Tools arm you with key information that help you make smarter investment decisions—but you don’t have to be an expert right away. Learn at your own pace.

  • Investment advice. If you don’t want to go it alone, find a broker that offers digital advice or direct assistance from a real person via phone or at a branch. Many brokerages now offer so-called “robo-investing” tools that automate the investment process and build a portfolio for you.

Tip: When it comes to advice, go with the big names like Schwab, as they offer both online advice as well as live advisors.

Adam Shell is a freelance journalist. He has worked as a financial markets reporter at USA Today and an associate editor at Kiplinger’s Personal Finance magazine. 

Millie content is licensed from Dotdash Meredith, publisher of Millie, Real Simple, InStyle, Investopedia, The Balance and more.


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