Do I Need a Brokerage Account?

If you want to purchase stocks, bonds, mutual funds or make other investments, you'll need a brokerage account.  The account gives you access to a broker who will make purchases on your behalf, in exchange for a commission.  The amount of commission they earn per transaction ranges from $5 to several hundred dollars, and depends on the type of broker you go with.

Different Types of Brokers

There are two different types of brokers you can choose from;  the discount broker and the traditional broker.

Discount Broker:  Discount Brokers have lower fees than traditional brokers because they do not offer the full range of services that traditional brokers offer.  Discount brokers do not provide advice on the type of investments you should buy, or assist you in any other way other than making the purchases or selling the items that you tell them to.

Traditional Broker:  Traditional Brokers will spend time researching different investments in order to provide you with suggestions for what to invest in.  They charge higher commissions because of the additional services they offer.

Some firms have both types of brokers available, so you can choose the one that works best for you.  Beginning investors may want to pay more for the additional services of a traditional broker, while more experienced investors may want to use discount brokers as they'll research and determine which accounts to invest in on their own.

Opening a Brokerage Account

 When you open a brokerage account you will be required to make a minimum investment.  The amount of the investment will depend on the particular company you decide to go with to open your brokerage account, as well as the type of investment you're making.  Educational accounts have some of the lowest minimum investments, with retirements accounts a close second.  Opening an account is as easy as visiting the website of the company you prefer, filling out an online application or printing one from the website, and submitting along with your initial investment check! 

Companies like Ameritrade and E-Trade are great for beginning investors.  They are discount brokers with affordable commissions between $8 and $30, and you can invest in mutual funds through them.  As mentioned in Investing for Beginners, mutual funds are one of the best investments for a beginner since you have the help of professional managers that handle all the research involved in selecting specific companies to invest in within the industry you choose.

With your brokerage account, you'll have the option of specifying if you would like to have automatic withdrawals from your checking or savings account on a regular basis to deposit into your investments.  Many investors will tell you this is the best way to go, as the money is transferred automatically, you don't have to remember to do it, and you start building or savings and investments automatically.  Before long, the withdrawal will become habit and you won't even miss that money as you watch your investments grow.