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Oct 27, 2022

How to Open a Brokerage Account

By Team Stash
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A brokerage account is a taxable investment account you use to buy and sell securities through a licensed brokerage firm. This type of account provides access to a wide variety of investment options to help you build a diversified portfolio. If you want to hold certain securities that only a licensed broker is authorized by law to purchase, such as stocks, you’ll have to open a brokerage account to make those investments.

Even if you have a retirement account, like a 401(k) or an IRA, opening a separate brokerage account may provide another avenue to building wealth over time. While retirement accounts often limit contributions and have penalties for early withdrawals, brokerage accounts give you total control over how much you invest and when you withdraw your funds. That allows you to work toward both mid-term goals, like a home purchase, or long-term aims, like having more money when you retire. 

 In this article, we’ll cover:

  1. Choosing a brokerage firm
  2. Brokerage account types
  3. Required information to open your account
  4. Funding your account

1. Find a brokerage firm based on your needs

According to the Financial Industry Regulatory Authority (FINRA), there are more than 3,000 brokerage firms in the United States, from brick-and-mortar offices to online and app-based options. So how do you find the right one for your needs when the pool is so large? First, consider how managing your investments fits into your lifestyle. You might want to think about factors like the following:

  • Convenience: Do you prefer to sit down face-to-face with a broker, or would you rather access your account online anytime? 
  • Investing style: Do you crave active management from an individual at a brokerage firm, or are you more interested in a passive investment strategy?
  • Investment objectives: What’s the time horizon for your financial goals, i.e., the length of time you plan to hold your investments? 
  • Risk profile: All investing involves risk, including the risk that you could lose money. How aggressive or conservative do you want to be in your investment choices? 

These considerations are important when you’re learning how to start investing, and they can give you a sense of what you want from a brokerage firm too. As you research your options, you’ll want to find out about the investment options, brokerage fees, level of support, and options for fractional shares offered by each brokerage you’re considering. 

Investment options you’re interested in

You can put your money into a wide variety of types of investments, and you’ll want to choose a brokerage that offers the kinds that interest you. Most firms offer several options, but you won’t necessarily find every investment class at each one. The most common securities you’ll find on offer are: 

While most people associate investing with financial instruments like stocks and funds, brokerage firms may also give you options for putting your money into other investment vehicles like real estate or commodities. All securities have different levels of risk and potential reward, so reflect on your investing style, objectives, and risk profile to decide on the investments that appeal to you. 

Brokerage fees and commission

You’ll generally pay some sort of fees on your brokerage account, and they vary from broker to broker. Full-service brokerage firms tend to have the highest fees, while online brokers and robo-advisors usually charge less. Sometimes you’ll pay a commission on each transaction, but even brokers that advertise commission-free trading may charge for other things, such as:

  • Management or advisory fees
  • Expense ratio fees
  • Sales load fees
  • Monthly or annual subscription fees

In addition to researching the pricing schedule of any brokerage you’re considering, find out if there’s a minimum amount of money you need to open your account and whether you must maintain a minimum account balance. 

Additional factors to consider

While what you can invest in and how much you’ll pay in fees are major considerations when choosing a brokerage, there are several other features that can make all the difference in your satisfaction as an investor. The resources and options a brokerage provides affect your investing confidence, ability to get the support you need, and how accessible certain stocks and funds are for your budget. 

  • Investor education: Whether you’re new to investing or have some experience under your belt, it pays to have information on your side. Brokerages that provide educational resources want you to understand your investments and succeed in building wealth, and you’ll become better at managing your overall financial picture as you learn. 
  • Robo-advisor option: It takes a lot of time, energy, and investment savvy to research, purchase, and manage your investments alone. And paying a live financial advisor to make decisions for you can eat into your returns. Robo-advisors can provide an affordable and convenient way to put together a portfolio that’s right for your needs. 
  • Customer service: Whether you’re working with a full-service firm or an online broker, excellent customer service means fewer frustrations and more confidence. From investing advice to troubleshooting your account, knowing you can easily reach out and count on a prompt, thorough response to questions can be a valuable feature of the brokerage you choose.
  • Fractional shares: Purchasing full shares of certain stocks can be cost-prohibitive; some of the most popular go for thousands of dollars per share. Fractional shares, or smaller parts of full shares, help make investing more accessible to the average person. 

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2. Choose your brokerage account type

Once you’ve researched and chosen your brokerage firm, you’ll need to decide what type of brokerage account you’d like to open: a cash account or a margin account.

  • Cash account: The amount you can spend to purchase securities is limited to the amount of money in your account. You’re not allowed to borrow funds from your broker to pay for transactions. Cash accounts are very straightforward, because you only spend what you have, and they’re generally seen as the least risky option. The downside is that you might miss out on opportunities to invest a larger amount of money than you have on hand in the hopes of a high return. 
  • Margin account: This type of account allows you to “buy on margin.” You can borrow money from the brokerage to make investments, and the securities you buy become collateral for your loan. Margin accounts allow for more complex trading strategies and may have the potential for greater returns. However, they’re considered far riskier than cash accounts, because you might have to pay back your debt immediately if the value of your investment falls. The brokerage can even sell off your investments to cover an account deficit. You’re also responsible for paying interest on the loan, and there’s always the chance that the interest will be higher than your returns. 

3. Provide the following personal information to open your account

Once you’ve decided on the what, it’s time for the how. To open a brokerage account with an online firm, you just need to hop on your computer. If you’re going with a brick-and-mortar broker, you may need to set up a phone or in-person appointment. 

Before you get started, gather the info you’ll need to streamline the process. Your brokerage firm will request some personal, financial, and tax identification information from you in order to comply with laws and regulations. Your brokerage should provide a secure way to share this sensitive information. Expect to be asked for the following:

  • Your name
  • Social security number or taxpayer identification number
  • Address, phone number, and email address
  • Date of birth
  • Information from a government-issued form of ID, like a driver’s license or passport
  • Employment status and occupation
  • Whether you’re employed by a brokerage firm
  • Annual income
  • Net worth
  • Investment objectives and risk tolerance

Note that you must be at least 18 years old to open a brokerage account. If you’re underage, you’ll need a parent or guardian to open a custodial account for you.

4. Add funds to your investment account

The final step of setting up your brokerage account is adding funds. You can likely make an initial electronic deposit through a linked savings or checking account. You may also be able to wire transfer money, deposit a check, or transfer investments from another broker. You’ll often see any electronically deposited funds in your brokerage account within one business day. Wire transfers should be available within minutes. Check deposits and investment transfers may take several business days to post, so check with your brokerage for more information.

The amount you’ll need to deposit into your account depends on the brokerage. Some require you to start with $1,000 or more. At other firms, you could open a brokerage account with just $100. And some, like Stash, allow you to start investing with just a few dollars. Regardless of your budget, you can find an option that makes it accessible to start building a brighter financial future.

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Team Stash


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