Updated: Oct 16
Knowing you should invest is the easy part. It's knowing where to begin that confuses a lot of people. One of the more common questions I receive is, "how do I begin investing?"
Outside of your retirement plans, like a 401(k), your journey to investing begins with a brokerage company. If you're unfamiliar with what a brokerage company is or what they do, check out my recent post that breaks down brokerage companies and the 3 different types.
Once you've decided on what type of brokerage company you should go with, the fun (it's not fun at all) begins. It's not that folks are lazy and don't want to research companies, most just don't know what to look for in a company.
Know What Type of Investor You Are
Just like you'd be naive to believe the U.S. Declaration of Independence when it stated "all men are created equal," you'd be naive to think that all brokerage companies are created equal. There are many types of brokerage companies, and none are necessarily better than the others — they're just...different. Choosing the right one largely depends on knowing who you are.
Some people are just beginning to invest, some people are advanced investors; some people prefer to trade frequently, some people prefer to buy investments and hold on to them like hoarders; some people prefer to get research and resources provided to them on a silver platter, some people prefer to do their own research.
Whatever the case, knowing what type of investor you are is crucial to picking the right brokerage company. Being an investor that trades frequently and picking a brokerage company with expensive ass commission fees is like having a long commute to work and voluntarily choosing a Hummer as your everyday vehicle. And being a brand new investor and choosing a brokerage company that doesn't provide any resources might not be the smartest decision you've ever made.
Know the Fees
If nothing else, the least (and I mean very least) you should know is how much your fees are. Not knowing that is just...not smart. While the majority of brokerage companies charge a commission fee per trade, most robo-advisors will charge a set percentage based on how much you have invested. For example, Company A may charge $4.95 per trade made, while Company B charges you 0.25% of your total investments per year (that's a $2.50 fee per $1,000 you invest).
Under no [reasonable] circumstance should you choose a brokerage company without knowing the fees they charge.
Understand the Investment Options
Is your only interest in investing in stocks, or do you plan to branch out a bit and try other types of investments (like bonds and funds)? These are important questions to know the answer to before choosing your brokerage company. You can bet your last 2 quarters and the lint in your pocket that all brokerage companies will offer stocks as an option. However, it's no guarantee all other options are offered.
Take a Look at the Promotions
I'ma keep it real, choosing a brokerage company based solely off the initial promotion is dumb as hell. That may sound a bit harsh, but it's the truth. However, if you're indifferent between two options, then the promotion offered might be the deciding factor for you. 99% of brokerage companies will have an introductory promotion because they're fighting for new customers. Whether it's free trades or cash rewards, be sure to at least know what your brokerage company is offering so you can take full advantage. Don't leave those free perks on the table.
Luckily for you, Finessin' Finances has taken the time to do a lot of the hard work and reviewed the top brokerage companies on the market. Here are our favorite brokerage companies.