Opening an investment account is both scary and exciting. On one hand you may be excited about the prospect of earning super dividends on your hard-earned savings. On the other, you may worry that you'll never see your savings again.
That's why it's important to check out the best broker and terms under which to open an investment account. Here are some things to look into before choosing an investment firm:
1. Type of investment. Do you plan to make a one-time deposit into an account and watch it grow over time? Will you collect interest from it periodically or let it compounds? Or do you plan to make periodic deposits, for example, from your paycheck or occasional windfalls? Making this decision in advance can help you set up the best type of account. You don't want to sign up for direct deposit each month, only to find in a few months that you can no longer afford the payment. Of course you can change the deduction at that time, but doing so from the outset is more convenient.
2. Brokerage location. Do you want to meet with your broker face-to-face or will you be satisfied with telephone or email contact? Would you be more comfortable with a large investment corporation like Merrill Lynch or do you prefer doing business with a small, locally-owned brokerage firm? Are you interested in building a more expansive portfolio in the future with possible diversification into bonds and metals, or will you continue to monitor this one investment account, perhaps a mutual fund, over time?
3. Trading activity. You may want to decide whether you'll play an active role in managing your account or let your broker make all the decisions. For example, do you want to buy and sell stocks or have everything done for you? Do you want to be informed of major purchases or sales or are you content to receive generalized quarterly reports? Might you become involved in a hands-on approach to trading your stocks via electronic activity, like E-Trade or Scott trades? Or will you keep in touch with your broker to give or receive advice?
4. Risk level. Stock investments usually fall into three main categories: low risk, moderate risk, or high risk. While varying terminology may be used, the meaning is the same. If you're not a risk-taker and want to hold on to your original investment while watching it slowly grow, the low risk category may suit you best. With a willingness to play the market, you can win high stakes or lose everything in a short amount of time. It takes a certain personality to be able to take certain financial dares.
5. Investment strategies. Do you prefer to invest in rolling stocks with well establish companies? Or are you interested in buying or selling options on certain company shares? You may either want to handle these transactions yourself, get advice, or trust your broker to handle them for you.
Find a broker who respects your views on money and savings and will work with you to use your money as you see fit. Get a Better Business Bureau report on the brokerage firm you plan to use to be sure they have a solid reputation. Never invest more money than you can afford to lose.
