Opening An Investment Account
There is a certain level of empowerment when opening an investment account since it means determining your own financial future and well being. The action is as simple as writing a check, sending it to a broker and filling out an application but there are certain considerations to keep in mind. Investments are not without risks and investment accounts come in a variety of options for different types of investors, styles and strategies. Here are some things to keep in mind when opening an investment account.
Account Funding
Funding an investment account can be done in a number of ways from periodic wire transfers to monthly direct deposits to one time lump sums. A student with limited financial resources may choose to contribute a small monthly deposit instead of writing a check for $50,000 to a broker. The amount of financing you have to start an investment account is often related to your investment style. Those with unlimited resources may be more aggressive and hands-on which may mean opening investment account for day trading or buying and selling futures.
Broker Type
New investors with little experience may feel more comfortable with a full-service broker to provide guidance when making investment decisions. Full-service brokers however often have higher minimum account funding requirements and larger commissions. Online discount brokerage firms have little to no fees other than commissions on trades but they don't provide one on one interaction with investment advisers by default. Seasoned investors who are used to making their own decisions and assuming a certain level of risk may be better off going with a discount broker instead of a full-service firm.
Trading Activity
Investors who have a high churn rate in their portfolios can benefit from lower commissions and more specialized investment tools. Buy-and-hold investors may not be concerned about commission pricing and like the added services provided by full-service brokers. Increased trading activity can cost significantly more if the wrong type of investment account is opened. Be sure to verify all associated costs with trading activity and other fees to make sure you're not paying extra for your investment activity.
Risk Tolerance
Some investors live in a perpetual state of fear wondering if the market will turn and they will lose all of their money. Each type of investment has an associated level of risk, such as mutual funds and options which should be considered if maintaining capital is a primary concern. Different types of investment accounts offer additional features such as margin trading or buying and selling options. These types of investment accounts however are not available right away and sophisticated investors must qualify and apply for additional investment options.
Investment Strategies
There are numerous investment strategies available for all risk levels and knowledge. The strategy used is normally associated with risk tolerance. Beginning investors will often stick with buy-and-hold strategies of blue-chip stocks or mutual funds. More sophisticated investors will venture into futures using double tops, options based on straddles and incorporating margin trading for additional leverage. Stick to an investment strategy you are comfortable and continue to educate yourself on other investment strategies as you gain experience.
