For example, let’s say you are 40 years old. This rule suggests that 70% of your investable money should be allocated to stocks, with the other 30% in fixed-income investments, such as bonds or high-yield CDs.
3. Open an investment account
All the advice about investing in stocks for beginners doesn’t do you much good if you don’t have any way to actually buy stocks. To do this, you’ll need a specialized type of account called a brokerage account.
These accounts are offered by companies such as Charles Schwab (SCHW +1.66%), E*TRADE from Morgan Stanley (MS +2.46%), and many others, as well as by newer app-based platforms, including Robinhood (HOOD +1.87%) and SoFi (SOFI +4.91%).
Opening a brokerage account is typically a quick and painless process that takes only minutes. And most will allow you to invest with “play money” first to make sure the platform is a good fit for you.
You can easily fund your brokerage account via an electronic funds transfer, by mailing a check, or by wiring money. Opening a brokerage account is generally easy, but you should consider a few things before choosing a particular broker:
Type of account
First, determine the type of brokerage account you need. For most people who are just trying to learn stock market investing, this means choosing between a standard brokerage account and an individual retirement account (IRA).
Both account types will allow you to buy stocks, mutual funds, and ETFs. The primary considerations here are why you’re investing in stocks and how easily you want to access your money. If you want easy access to your money or are just investing for a rainy day, you’ll probably want a standard brokerage account.
On the other hand, if your goal is to build up a retirement nest egg, an IRA is a great way to go. These accounts come in two main varieties — traditional and Roth IRAs — and there are some specialized types of IRAs for self-employed people and small business owners, including the SEP-IRA and SIMPLE IRA.
A key point is that IRAs are highly tax-advantaged vehicles for purchasing stocks. However, the downside is that it can be difficult to withdraw your money until you reach a certain age.
There are also specific qualifications for investing in IRAs and taking the tax benefits, such as the Roth IRA income limits, so be sure to qualify before investing. One potentially appealing feature of Roth IRAs is the ability to withdraw your contributions (but not your investment profits) at any time and for any reason.
Costs and features
The majority of online stockbrokers have eliminated trading commissions for online stock trades. So, most (but not all) are on a level playing field as far as costs are concerned, unless you’re trading options or cryptocurrencies, both of which often have trading fees. However, there are several other big differences.
For example, some brokers offer customers a variety of educational tools. Some offer access to investment research and other features that are especially useful for newer investors. Some have physical branch networks, which can be beneficial if you prefer face-to-face investment guidance.
There’s also the user-friendliness and functionality of the broker’s trading platform to consider. Many will let you try a demo version before committing any money; if that’s the case, it can be well worth the time.