Many individuals aren’t sure how to start investing in stocks, bonds, and other securities. A brokerage account is one way to start building a diversified portfolio.
Traditional savings accounts are a good way to help build your emergency fund and to have cash on hand for short-term goals. But if you’re investing for retirement, your children’s education, or even a down payment on a house, you’ll likely want to invest in stocks, bonds, and other securities to help maximize the potential for growth. And to do that, you generally need to have a brokerage account.
A brokerage account is an investment account that you open either as an online trading account or through a full-service brokerage firm to buy and sell securities. The most common type is a cash brokerage account, where you deposit a sum of money that’s used to purchase investments for your portfolio. Let’s say you want to buy 100 shares of ABC stock at $20 a share. Before placing the trade, you would put at least $2,000 in your brokerage account to cover the cost of the stock and any related fees. Once executed, you get a confirmation statement showing the details of the transaction.
Keep in mind the amount you buy can’t exceed your account balance. So if you don’t have enough funds for the security you want, you’ll have to deposit more money before proceeding. Some people link their savings or checking account to their brokerage account to make it easier to transfer funds as needed.
You could also apply for margin trading privileges, which involves leveraging your account. But given the increased risks, this strategy is usually best-suited for investors who have an aggressive investment style and can handle the potential consequences.
You don’t necessarily have to use an investment account to buy government bonds, mutual funds, exchange-traded funds, and in some cases stocks. There are ways to buy these investments directly. But if you do, you’ll likely have to spend more time gathering information from multiple sources to monitor your portfolio and evaluate progress toward your financial goals.
With a brokerage account, the investments in your portfolio are consolidated in one spot, which may make it easier to see how you’re doing. You also typically have a single point of contact for questions and access to a wide range of planning tools and investment research—a level of support you might not get by going direct.
If you decide to open a brokerage account, you’ll need to figure out which firm to use. There are hundreds to choose from, all with different fees and services, so it’s important to do your homework. Here are few questions to help you identify which securities firm may be right for you.
Once you’ve made your decision, you’ll want to reach out to the firm to find out the steps for opening your account and sending your initial deposit. Depending on the firm, you may be able to complete and submit your application online.
Brokerage accounts provide a convenient way for investors of all types, new or seasoned, to invest in stocks and other securities to pursue their long-term goals. To learn more about investment fundamentals and different investment strategies, consider attending a TD Ameritrade webcast or in-person event.
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