Why Do I Need a Broker?

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If you want to buy stocks, you're going to need a broker. And who wouldn't want to own stocks? Over the past 100 years, your long-term savings would have fared better in the stock market than anywhere else -- not in bonds, not in real estate, not in gold, and certainly not in Beanie Babies.

But before you enter the first ticker symbol on your Fool Portfolio tracker; before you start tracking the Dow's every move; before you run the numbers on a company's cash flow, you should set some expectations.

Here's one good rule of thumb: If you've got money you won't need for five years or longer, you should invest it in the stock market. Money earmarked for use in less than five years (such as for a down payment on a house, or a graduating high school senior's college tuition) should be put in a short-term savings vehicle, like a money market account, savings account, or certificate of deposit (CD). And, heaven forfend, if you have high-interest credit card debt, send all your extra shekels directly to your lender and pay off that bill!

But your long-term money belongs in stocks. Why? It's simple: Historically, there is nowhere you could have gotten a higher rate of return than in the stock market. Even though the bear market of 2000-2002 put a damper on returns -- the S&P 500 returned only 6% annually over the 10 years ending in November 2007 -- the historical average annual S&P return since 1926 exceeds 10%. And while the market has performed quite well since those 2002 bottoms, that trend won't continue forever, and before you start investing, you should consider that.

Nevertheless, over the long term -- during bull markets, bear markets, depressions, recessions, and elections -- the stock market has been the place to be. And a discount brokerage account will get you there.