3 Mistakes You Might Make When Opening a Brokerage Account

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  • Investing in a brokerage account is a great way to grow your money.
  • It's important to choose the right account to invest in.
  • Picking wrong could leave you paying fees or otherwise losing money.

Steer clear of these at all costs.

Any money you have earmarked for emergency expenses or a near-term goal, like buying a house, should be kept in a savings account. That way, your principal is protected and you can access your money easily.

But if you have money you don't need as your emergency fund or for short-term goals, then it pays to open a brokerage account and start investing your cash. Doing so is a great way to turn a modest sum of money into a much larger one over time.

But it's important to find the right place to invest your money. And so here are three mistakes to steer clear of if you're a new investor and signing up for a brokerage account.

1. Signing up to pay fees

These days, almost all major brokerages do not charge a fee or commission for every trade you make. As such, there's no need to subject yourself to that sort of costly arrangement.

But it's not just trade-related fees you'll need to look out for. Some brokerages also charge a fee for inactivity -- meaning, leaving your account alone for too long. That's not something you want, either.

2. Waiting until you have a certain sum of money to invest with

You might assume that you'll need to reach a certain monetary threshold before opening a brokerage account -- for example, having $500 or $1,000 to start out with. But actually, many brokerages let you open an account and start trading with very little money. So if you're only sitting on, say, $50, don't assume that you have to wait until you've accumulated more money to start trading.

The sooner you begin investing, the sooner you can start growing wealth. And you're better off putting $50 to work if that's all you have and then adding to your brokerage account as you can.

3. Not using a broker that offers fractional investing

At this point, a lot of brokerages are offering account holders the option to buy stocks on a fractional basis. And that's a feature worth prioritizing.

Fractional investing makes it possible to buy a portion of a share of stock if a full share is out of reach for you financially. So, let's say you have $50 to work with but want to invest in a company whose stock is trading at $200 per share. With fractional investing, you can use your $50 to purchase a quarter of a share of that stock rather than be forced to wait until you've saved up $200 to buy a full share.

The option to invest in fractional shares could help you assemble a more diverse portfolio. And that's an important thing to have during periods when the market is doing well, and also, during periods when it's in a slump.

Opening up a brokerage account is a savvy move that could lead to a world of long-term wealth. Just be sure to avoid these pitfalls along the way, because they could end up costing you money and limiting your ability to invest the way you want to.

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