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Opening and investing in a brokerage account can help you save for long-term goals like buying a house and retirement — and doing so is simple with these four steps. To get started, set your investment goals, compare account features, complete the application and deposit your funds.
1. Consider Your Investment Goals
Solidifying your investment goals can help you determine what type of brokerage account you’d like to open.
Online brokerage firms are self-managed, putting you in charge of your investments. These popular investing platforms come with fewer fees than managed brokerage accounts since you don’t need to pay an investment advisor.
Managed brokerage accounts are run by investment advisors, but they’re expensive. If you’re looking to be a hands-off investor without the cost of a professional, a robo advisor could be a better fit for you. These digital platforms use algorithms to help you invest based on your goals, as well as rebalance your portfolio.
| If you want: | You could benefit from an: |
| A hands-on approach Minimal fees | Online Brokerage |
| A hands-off approach but with higher fees An investment advisor to manage your account | Managed Brokerage |
| A hands-off approach with lower fees than a managed brokerage | Robo advisor |
Next, you need to determine how you plan to buy and sell investments. You can open a cash or margin account.
With a cash account, you buy investments upfront with your own funds. With a margin account, you borrow from the brokerage firm and pay interest. Margin accounts are more complex and only recommended for more experienced investors. Some brokerage firms have a margin account as their default, according to the U.S. Securities and Exchange Commission, so make sure you open the right type of account.
2. Compare Fees, Investments Options and Account Minimums
Brokerage accounts come with different fees, depending on the firm. Common fees to compare are maintenance fees, trading fees and advisory fees.
Before choosing a brokerage account, you also want to make sure the firm offers all the investments you want to trade. While they’ll all have common assets like stocks, bonds and funds, they don’t all offer more unique kinds like options trading and cryptocurrencies. Accounts may also have different minimum requirements. Charles Schwab, for example, doesn’t have account minimums for basic trading, but it has a $5,000 minimum for its basic robo advisor offering.
Once you find a brokerage account that offers the investments you need with manageable fees and account minimums, you should also verify the brokerage firm’s credibility.
The Financial Industry Regulatory Authority (FINRA) has a free BrokerCheck tool. BrokerCheck shows you employment history, certifications, licenses, and any violations for brokers and investment advisors.
3. Complete an Application
To open a brokerage account, you’ll need to complete an application, which is a fairly quick process that can usually be done online.
The brokerage firm will request basic information to verify your identify and get a sense of your investing goals and experience, which can include:
- Social Security number
- Address
- Telephone number
- Email address
- Date of birth
- Driver’s license
- Employment status and occupation
- Annual income
- Net worth
- Investment objectives and risk tolerance
- Investment time horizon
- Liquidity needs
Source: U.S. Securities and Exchange Commision
4. Deposit Funds
Once your account is set up, it’s time to start investing. You can fund your account by transferring money from a linked bank account, depositing a check or transferring investments from another broker. Most firms will also allow you to set up automatic transfers so you don’t have to remember to manually contribute. But don’t forget to actually invest the money once it’s deposited.
If you’re investing with a taxable brokerage account, there are no contribution limits — you can invest as much as you’d like. But if you’re investing in an individual retirement account (IRA), for instance, you cannot invest more than the IRS allows. (The IRA contribution limit is $7,000 for those under age 50 in 2024).
Keep in mind that financial advisors typically recommend only investing money in the stock market that you won’t need to touch for at least five years.
Sources:
FINRA. (2024). Brokerage Accounts. Retrieved from https://www.finra.org/investors/investing/investment-accounts/brokerage-accounts
U.S. Securities and Exchange Commission. (2023, December 7). Investor Bulletin: How to Open a Brokerage Account. Retrieved from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_openbrokerageaccount
