3 Signs You're Ready to Open a Brokerage Account
Make sure you don't regret your choice to start investing.
- Investing in most assets requires you to have a brokerage account.
- It's easy to open a brokerage account, and you don't need a lot of money to start investing.
- You do need to make sure your financial ducks are in a row before you put money on the line.
Brokerage accounts have become more accessible and affordable than ever. You can open an account with a discount online broker without having to make a certain minimum deposit in most cases. Many brokers also offer no commissions, so trading with small amounts of money makes financial sense. And fractional shares make it possible for people with little cash to still invest in assets such as stocks and ETFs.
But before you open a brokerage account to begin investing, you'll still want to make sure you have completed some key financial tasks on your to-do list. Here are three signs you're prepared and ready to open your first brokerage account.
1. You have an emergency fund
When you invest money, you don't want to have to sell your investments at an inopportune time. That's because the market naturally goes through cycles where crashes happen and are then followed by recoveries.
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If you invest over a long timeline -- leaving yourself around five years before you have to sell -- you can significantly reduce the chance of losses that could occur if you need to sell your investment at a bad moment.
As a result, you'll want to make sure you have money saved up for emergencies before you start putting your investments into the market. Without emergency savings, if you find yourself faced with an unexpected expense. This may leave you with the undesirable choice between selling investments and locking in losses if the timing isn't right or going into debt to deal with the emergency costs. If you have an emergency fund, though, you won't need to sell your investments out of necessity. You can do so when the moment is right.
2. You've earned your 401(k) match
For most people, it makes sense to put any spare money into a workplace 401(k) and earn their company match before they invest in a different type of brokerage account.
Employers frequently offer 401(k)s to workers, and if yours does, you can just sign up to invest in your workplace 401(k). Money can be taken out of your paycheck directly and automatically. And if your employer matches some of your contributions, they'll give you additional free money when you invest.
You don't want to pass up the free money from your company, so make sure you're maxing out your employer matching funds before opening a brokerage account and investing money elsewhere.
3. You have an investing plan
Finally, it makes sense to open a brokerage account only after you have a solid plan for what assets you'll buy within it. Without an investing plan that focuses on maximizing returns and reducing risks, you could end up facing too great a chance of loss.
If you've taken these three steps, you're most likely ready to open a brokerage account and start putting your money to work for you. The sooner you get started, the faster you can work on building wealth, so it's best to check these items off your list ASAP.
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