Most people are aware that investing in stocks and bonds can be one of the keys to building a prosperous future, but that still leaves one question: How do you actually start stock trading?
Fortunately, the answer there is simple: Find a broker.
What is a broker? Simply put, a broker acts as a middleman who executes trades on your behalf, buying and selling stocks or other securities so that you don’t need to.
Brokers can also do a lot more — including offering important advice on investing and retirement — but without a broker, it might be difficult to build your savings into a nest egg that will keep you living comfortably far into retirement.
How to Find a Broker
Although you can’t really begin investing until you’ve found a broker, the good news is that you have plenty of options. Search online for brokers or reviews of brokers and begin comparing your options, or see if you can get a referral from a trusted professional adviser like an accountant or personal lawyer.
When trying to find a broker, there are a few important considerations, first and foremost being fees. Most brokers will have a basic, per-transaction fee, while others might charge you a percentage of your total account or take a commission on each sale. Regardless, it’s important to understand your broker’s compensation and how that meshes with your investment goals. It might even be better to accept a higher fee if other aspects of their service are right for you.
Account minimums are also going to be an important factor, especially if you’re starting with a relatively small amount, so be sure you know what’s required to get started and find a broker ready to take on a client like you.
And finally, different brokerage firms might limit what sorts of securities that they execute trades on. If you do have some specific ideas about what sort of investments you’re looking for, be sure that your broker will meet your needs before you open an account.
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Online Broker vs. Traditional Broker
The differences between an online broker and a traditional broker are, in many ways, a proxy for the difference between what’s known as a “discount broker” and a “full-service broker.”
A discount broker, like Fidelity or Robinhood, performs only the most basic functions of a broker: buying and selling on your behalf.
A full-service broker, meanwhile, is more of an active adviser. Full-service brokers, such as Edward Jones and Merrill Edge, will execute trades, but they usually also offer a broader package of advisory services and retirement planning as well. If you’re looking for an expert you can meet with, face-to-face, and discuss your investing plans, you’ll need to sign on with a full-service, traditional broker.
A full-service broker is going to charge more to reflect the more comprehensive suite of services they offer. Meanwhile, online discount brokers are going to cost less, but even the best online brokerage won’t offer up personalized investment advice. Take the time to consider how much help you will need and whether access to in-person advisers matters to you before settling on one or the other.
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Tips to Start Investing
With so many different types of investments and strategies out there, taking the first step can feel overwhelming. The good news is that many economists now believe that some of the most basic approaches to investing are ultimately just as effective in the long run. As long as you have a diverse portfolio of different investments — always wise to avoid having too many eggs in one basket — and minimize the fees you’re paying, you should be in good shape.
For younger investors, consider using exchange-traded funds, or ETFs, which are broad baskets of stocks gathered together into a single security. ETFs allow you to invest in all of the pieces of an index or industry, giving you a broad collection of stocks in one place. They typically offer much lower expense ratios — a fancy way to say “fees” — than mutual funds.
For investors closer to retirement, it’s also important to consider having more bonds in your portfolio as they’re a less volatile source of income and can protect you from the sort of big market swings that someone younger can simply wait out.
Don’t Get Left Behind, Start Investing Today
For all of the complicated and conflicting advice you can get about investing, it’s important not to get intimidated and miss out on one of the most important tools for building and growing wealth.
So, even if you feel a little out of your depth, take the time to research brokers and begin putting yourself on the path to a more prosperous future.
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