The First Step in Your Investing Journey

No one taught me (Laura Bente) about finance in school...

Unless you count the one day in eighth grade when my home-economics teacher showed the class how to fill out a check.

No one explained the importance of an individual retirement account ("IRA")... what makes the stock market move... or why not having a 401(k) is throwing away free money.

This problem is widespread. According to a 2022 survey from the Council for Economic Education, only 25 states require economics courses in high school. That number rose slightly from 20 in 2016.

I'm one of the lucky ones. In college, I worked in banking and had a mentor who guided me through the "jungle" of investing.

Then, in 2008, I started with Stansberry Research – the largest independent financial publisher in the world – which has expanded my financial knowledge more than I thought possible.

I have access to some of the world's greatest financial minds, research costing hundreds of thousands of dollars, and data systems the average investor probably doesn't even know exist.

But when it comes to investing, the hardest part is getting started. I'm not talking about how to figure out what to invest in. Today, we're going even more basic...

I'm talking about opening a brokerage account.

Now, I know many of our readers are already active investors who have brokerage accounts. You can still review the information I'll share today – both to reconsider whether your current broker is really the best fit for you... and in case you know someone who'd benefit from this introduction.

At the most basic level, the role of a brokerage firm is to help individuals buy and sell securities (like stocks, bonds, or options). Depending on the type of broker, it may also provide research and advice. The more assistance the broker provides, the higher its commissions and fees.

When it comes to buying securities, you have two main brokerage options: full service or discount.

Full-service brokers work for firms like Merrill, Wells Fargo, and Edward Jones. They interact directly, person to person, with clients. They also frequently call customers with buy and sell recommendations.

Full-service brokers can be useful if you need a lot of hand-holding. The problem is that brokers who take care of everything also charge fees and commissions for their services. Those charges can add up to as much as 1% to 2% of your assets every year.

I prefer discount brokers. You interact mainly with their websites. These brokers normally don't talk with you on the phone unless it's absolutely necessary (and will charge you more money if you've called them to place a trade). They're not giving you buy and sell recommendations.

In exchange for accepting less human contact and spoon-feeding, discount brokers lower your transaction costs considerably. The fees and charges are small, often zero, which means more money for you.

You have dozens of options when it comes to finding a good discount broker.

Here are a few things you should look for...

1. Fees and commissions. For several years, most discount brokers have let you place basic stock trades for free. However, depending on the broker, you could still pay to buy or sell shares that don't trade on a major U.S. stock exchange (either over the counter or internationally)... to trade options... or to trade using margin (borrowed money).

2. Account minimums. When you're ready to open a brokerage account, some brokers might require you to deposit a certain amount of money first. Account minimums can range from $0 to more than $2,000. Higher account minimums are likely if you want to do something more advanced, like options trading.

3. A solid reputation. There are lots of sources to find summaries of brokers. One of my favorites is from the financial journal Barron's. Every year, Barron's ranks the top online brokers with a detailed analysis of each. You can access the article by creating a free account on its website. If you don't need a lot of detail and don't want to make an account, you can also check out NerdWallet's online broker list.

So once you've picked your broker, what next?

Opening a brokerage account is similar to opening a normal bank account. The broker will need your personal information (like your Social Security number) and your employment information.

The broker might also ask about your investment history, your risk tolerance, and what type of investment account you want to open – a margin account or a cash account. A margin account lets you borrow money to trade. But most brokers require specific deposit amounts, high net worths, or some sort of trading experience to open a margin account. So most new investors would likely just need a cash account.

Once your application is completed and approved, which usually takes fewer than 15 minutes, it's time to fund your account to start trading. The quickest way to fund your account is by linking it up to your bank account. Linking your accounts can take several days. You could also choose to send the broker a check, but that will take longer.

Once your broker has your cash, you're ready to invest.

And what should you buy? At Health & Wealth Bulletin, our favorite investments tend to be stable, profitable, dividend-paying companies rather than high-growth speculations. Here's what we published in April about five qualities of a winning long-term stock investment.

If you'd rather someone else do the financial research for you, we currently have a special discount of 75% off the regular price of our Retirement Millionaire newsletter – just $49 for a full year's worth of access. Click here to learn more.

You can also get started with a low-cost index fund that tracks the broader stock market. We've previously suggested the iShares Core S&P 500 Fund (IVV) or the Vanguard S&P 500 Fund (VOO) as well-regarded funds with low fees.

Going back nearly 100 years, the S&P 500 Index has averaged a gain of nearly 10% per year... factoring in countless boom times and busts along the way.

If you're not sure where to put your money, the important thing is to get into the markets so your gains can begin compounding now. With your brokerage account in place, you're ready to get started.

What We're Reading...

Here's to our health, wealth, and a great retirement,

Laura Bente, CFP®
August 17, 2023