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Opening A Brokerage Account: Important Considerations




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This article is from the How to Start an Investment Program tutorial, author unknown.

Opening A Brokerage Account: Important Considerations

There are several things to consider when deciding where to open your account. First, ask yourself if you feel you have the experience and confidence to go it alone. I admit I spent some time years ago with a nationwide brokerage firm and don't regret it one bit. At the time, I needed to watch their trades, listen to their rationale, and begin to formulate my own personal objectives. I also paid very steep commissions for this education, but that's usually how it's done.

After a while, I felt confident to begin trading at a discount firm. They answered my questions and provided me with background information about companies I was interested in, but let me know the final decision was mine. For this shifting of responsibility, I paid lower commissions on trades. With the advent of online and web trading, I now do all of my stock trading by computer. I'm comfortable with it and the commissions are very low. It's definitely something to consider if you are computer literate and don't feel the need to talk to a live broker.

If you plan to invest in mutual funds rather than stocks, the situation is basically the same. You can purchase funds through a broker or financial advisor and pay a "load" (a fee) of between three and six percent for their advice. Or, if you feel comfortable choosing your own funds, you can buy into a no-load or low-load fund (from Fidelity, Dryfus, Janus, etc.) without paying anything up front.

Sometimes there are fees to get out of a fund (backend loads), so you need to read the prospectus carefully. Also pay attention to the management fees that you are indirectly paying to the fund manager. This can be found in the prospectus, also. If your fund is not beating the average (S&P index) on a consistent basis, you may want to read the section on Index Funds again. In my opinion, there is no reason to reward fund managers that are always below average.

In closing, finding a broker or brokerage company is a lot like finding a good dentist. Word of mouth probably works the best. Ask people that you know are active investors who they trade with, and if they are satisfied with the service they are receiving. Service is important, but so is finding a broker with which you are comfortable in discussing your finances.

Good luck in your search. In the next two chapters, I will be discussing some general strategies for investing in mutual funds and in individual stocks.

 

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