What Is a Brokerage Account?

What Is a Brokerage Account?

by Apr 18, 2019Investments

The world of investing includes a lot of unique vocabulary. Some of it is fairly straightforward, while other parts can be almost indecipherable. One of the most basic and important terms in investments is a brokerage account. Understanding what a brokerage account is – and isn’t – will make you a more savvy investor.

Brokerage Account Basics

A brokerage account is similar to a traditional bank account but is specifically for investments. Opening a brokerage account is what allows you to buy and sell stocks, bonds, funds, and other types of investments.

Brokerage accounts must be opened with a brokerage firm. You probably already know of several even if you don’t realize it. If you’ve ever heard the names Goldman Sachs, Charles Schwab, Ameritrade, or E-Trade – those are all brokerage firms.

Once you’ve opened a brokerage account, you own the money and investments in the account and can sell investments and withdraw that money at any time.

Managed Vs Self-Service Accounts

In general, brokerage accounts come in one of two varieties: managed or self-service.

Self-Service: These are accounts with an online brokerage company like E-Trade or TD Ameritrade. These accounts allow you to trade investments through their proprietary online trading platforms. They’re usually less expensive than a managed brokerage account, but the tradeoff is that you’re pretty much on your own.

Managed: These accounts are ones that typically come with an actual brokerage agent who will help set up, manage, and advise your account. These accounts are almost always more expensive than a self-service account.

How To Choose

If you feel comfortable flying solo and want to buy and sell investments with a little cost and friction as possible, you’re probably better off with a self-service account.

If, however, you’re new to investing and want the assistance and security of an investment professional as a safety net, then a managed brokerage account is likely a better fit.

Once you’ve decided which type of investment account you want, you’ll need to choose an account provider. When comparing brokerage account providers, look for one with a low account minimum and no account fees.

You should also look at what the broker charges for the types of investments you’re interested in trading. If you want to trade stocks, for example, look for a broker with a low trade commission. If you are a mutual fund investor, choose a broker that offers no-transaction-fee mutual funds and commission-free exchange-traded funds.

Using A Financial Planner

An alternative option to opening your own brokerage account is to work with a financial planner. In this scenario, you work with a financial professional to evaluate what your investing goals are, and then that person handles all the investments on your behalf.

A financial planner will set up a brokerage account for you. You can monitor that account if you feel like it, or leave it to them entirely.

The benefit here is that you’re free to focus on doing everything else in your life, while an experienced professional manages your investments. The peace of mind this provides is often far more valuable than the cost of hiring a financial planner to begin with.

To learn more about investing and working with a financial planner, please contact our offices today.

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