Introduction to Brokerage Accounts

Introduction to Brokerage Accounts

In many cases, the first step to building an investment portfolio is going to be to open up a brokerage account. The purpose of a brokerage account is to allow you to make purchases of investment vehicles such as mutual funds, stocks, bonds and other types of investments. How you do this is by paying a professional to make the purchases or sales as you tell them to.

Brokers charge commissions which can range from $5 per transaction to several $100’s of dollars per investment depending on the type of broker or brokerage that you are working with.

So what causes the difference in price from one brokerage to another?

The difference in price comes up depending on what type of brokerage you are working with. There are traditional brokers and there are discount brokers, and the difference lays in the services that they offer you. For example, a traditional brokerage is going to offer a much wider selection of services, but the price you pay for this increase in services is going to be higher as a result. These are like professional money management firms, and they are capable of offering you a great deal of investing advice to make sure that you choose the right investment vehicles for your needs.

Discount brokers, on the other hand, are companies that specifically aim to tailor to investors that are more self-directed. They do not offer the same advice about where you should put your money, meaning that you are responsible for making your own personal financial decisions. As a result, because they are not providing you with any advice, their commissions are much smaller than what the traditional brokers charge.

There are a number of brokerage firms that are set up to offer both types of services. What this means is that you can start out with a traditional brokerage service, getting the investment advice that you need, and then eventually you can graduate into a cheaper service by making your own investment decisions and only having the broker make the trades. This is great if you are learning how to invest on your own and only need a little bit of help. If you are looking for a discount broker, you might try Ameritrade, E-Trade, TD Waterhouse and other similar companies. Charles Schwab is an example of a brokerage company that offers both traditional and discount services, so this is also worthwhile to check out. These services all make it possible to invest in a wide variety of different types of investments including mutual funds, common stocks, IRA accounts and more. This makes it easy to manage your financial accounts however you like because you are not limited to a small number of investment vehicles. Once you open an account with one of these brokerage companies, you can begin to invest your money how you like.

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