When youâre a beginner investor, the right brokerage account can be so much more than simply a platform for placing trades. It can help you build a solid investing foundation â functioning as a teacher, advisor and investment analyst â and serve as a lifelong portfolio co-pilot as your skills and strategy mature.
What is a stock broker?
A stock broker is a person or an institution licensed to buy and sell stocks and other securities via the market exchanges. Back in the day, the only way for individuals to invest directly in stocks was to hire a stock broker to place trades on their behalf. But what was once a clunky, costly transaction conducted via landline telephones now takes place online in seconds, for a fraction of what full-service brokers used to charge for the service. Today, most investors place their trades through an online brokerage account.
How to choose a financial advisor
Consider three factors when choosing a personal financial advisor so you get the advice youÂ want âÂ and donât payÂ too much or pay for things you donât need:
1. SERVICES YOU WANT
If you want help choosing and managing investments,Â a robo-advisor isÂ a streamlined, cost-efficient choice. Itâs alsoÂ good for those just starting out, because robosÂ have low or no account minimums.
If you have a complicated financial situationÂ or want holistic advice on topics like estate planning, insurance needs, etc., you might need a human advisor.
You can even have it both ways:Â Get started with a robo now, so youâre notÂ missing out on stock market gains, and add a human advisor later for comprehensive planning.
Robo-advisorsâ annual feesÂ start at 0.25% of the assets they manage for you, with many top providers charging 0.50% or less.
Human advisors also often charge a percentage of the amount managed,Â with a median fee of 1%, although it can range higher for small accounts and lower for large ones. SomeÂ require at least $250,000 in investable assets to get started.
Others mayÂ charge a flat fee, an hourly rate or a retainer.Â Understand theirÂ costs and feesÂ before you commit to anyone.
What is a brokerage account?
A brokerage account is an investment account. Once youâve deposited money into a brokerage account, you can use that money to buy investments like stocks, bonds and mutual funds. You can open a brokerage account at an online broker.
Is a brokerage account right for you?
YES, A BROKERAGE ACCOUNT IS A GOOD CHOICE IF â¦
- YouÂ want to purchase and manage your own investments. To do so, you need a brokerage account. Here are ourÂ top picks for best online brokers.
- You want toÂ invest money for retirementÂ (and youâre already contributing enough to earn a 401(k) match, if your employer offers one). In this case, you want a specific type of brokerage account called a Roth or traditional IRA. These have important tax benefits. Here areÂ our picks for theÂ best IRA providers.
OTHER ACCOUNTSÂ MIGHT BEÂ A BETTER FIT IF â¦
- Youâd rather have someone else do the day-to-day work of managing your retirement account or other investments. If this sounds appealing, consider opening your brokerage account at a robo-advisor, which is a low-cost alternative to a human investment manager. A robo-advisor will choose and manage your investments for you, based on your goals. Here are ourÂ top picks for robo-advisors.
- You are saving for a goal you want to accomplish in the next five years. With that short time horizon, steer clear of the stock market andÂ consider an online savings account or other short-term investments.