The process to open an online brokerage account and manage your investments is simpler than it has ever been. The accounts are easy to set up, easy to fund and cheap to use.
The problem for many is that they don’t know where to start or what questions to ask … and once they do open and fund their account, what stocks to buy.
It can be a very intimidating process, but thankfully, we are here to help you learn how to invest. So without further ado, let’s work through all the necessary steps and figure out what’s needed to start investing on your own.
Getting Started as a New Investor
The first step to opening an online brokerage account and starting investing on your own is to actually find a broker to work with. There are countless options out there, but for a new investor who is going to seek good customer service, access to research material and an easy-to-use platform, you want to go with one of the more recognizable brokerages in the market.
You should not necessarily focus on price. Quality is important.
Charles Schwab Corp (NYSE:SCHW), TD Ameritrade Holding Corp. (NASDAQ:AMTD) and E*Trade are considered top-notch online brokerages with easy-to-use platforms that are available in both mobile and desktop versions. What makes these service providers so appealing is that all offer excellent customer service, with brokers and financial advisors who are there to help. These people will walk you through the application and funding process while also letting you familiarize yourself with their respective platform before making any investments.
That said, Schwab charges $8.95 per trade whereas Ameritrade and E*Trade charge $9.99 per trade for stocks and ETFs.
You can find brokerages that are cheaper, like eOption for $3 per trade, but you sacrifice the easy-to-use platform and customer service. For an investor who is just starting on their own, having help is very important.
When choosing a broker, most of the well-established firms offer similar services. Therefore, it is most important to choose a broker with a platform you can easily navigate and understand. Play around before you fund it, and make sure you know how much is needed to fund the account.
Every broker has a different limit. Ameritrade will let you open an account with $0 in it, whereas Schwab requires $1,000 and E*Trade asks for $500. Then, some brokerages require an opening fee, but not all. All of this is something you must consider when making your choice.
In all honesty, you need to have at least $1,000 before making the leap to invest on your own. Then, you can add to it weekly, monthly or even annually to create a far better savings instrument than a savings account will provide.
After you have decided what broker to use, you must determine what kind of account to open. The two most common are a traditional and Roth IRAs, which are normal for those wishing to save for retirement and gain certain tax benefits. However, the larger brokerage firms offer a slew of account options, like inherited or custodial IRAs.
The best option is to explain your situation and your goals to one of the financial advisors at the online brokerage firm. They will direct you to the best option.
The point is, there are a lot of people there to help. The very best advice that one could give to a new investor is to use that help.
The Dos and Don’ts for New Investors
With that said, after you 1) Choose a brokerage 2) Determine what kind of account to open and 3) Familiarize yourself with the platform, it will be time to decide how to invest your money.
Remember, you control your risk and potential reward by what you own. There are countless options, from stocks to ETFs to mutual funds — and then even more exotic investments like options. It can be overwhelming.
However, when I say “you control risk” I mean to be sure to follow the dos and don’ts for new investors.
For example, stay away from the smaller, less-well-known companies. These stocks are typically even more volatile than the volatile market.
I suggest owning blue-chip stocks of companies you know when starting off. These are companies like Apple Inc. (NASDAQ:AAPL), Johnson & Johnson (NYSE:JNJ) and Wal-Mart Stores, Inc. (NYSE:WMT) that are not going to be as volatile as an up-and-coming biotech or solar company.
One of the biggest mistakes that new investors make is trying to hit a home run with every purchase. Remember, investing is for investments, not day trades. When you buy a new home or car, you don’t turn around and sell it the next day. Instead, you make the investment, hold on to it and be patient.
Another big mistake that new investors make is looking at their portfolio every single day. That makes no more sense than checking Kelley Blue Book every day for the value of your car, or having your home reappraised every month.
If you constantly look at the price and value of your holdings on a day-to-day basis, you will drive yourself nuts. The markets are volatile, yes, but you can find some peace in the fact that stocks and markets go higher over time. Don’t believe me? Just look at historical charts of the S&P 500 and Dow Jones.
In closing, I want to reiterate that investing can be very difficult. There are so many choices, so much information and so many people saying to go left and go right.
That’s why it is so important for new investors to own the companies they know. If you use iPhones and iPads, then buy Apple stock. If you shop at Walmart, then buy WMT.
And if you don’t feel comfortable with that idea, new investors may want to consider exchange-traded funds, or securities that let you invest in entire industries or indexes of the market at once.
For example, you can buy the SPDR E&P 500 ETF Trust (NYSEARCA:SPY) and essentially own every company that makes up the S&P 500. It is a good way to diversify your portfolio, and to feel confident as you begin your journey as a new investor.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.