Do These 3 Things Before Opening a Brokerage Account

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  • Opening a brokerage account is essential if you want to invest.
  • You'll need an emergency fund before you’re really ready to open a brokerage account.
  • Before opening your account, you should develop an investment strategy -- among other things.

Completing these three tasks helps ensure you're really ready to start investing.

Opening a brokerage account is usually a smart financial move. There are many discount online brokers out there that enable you to invest in a wide range of assets from stocks and bonds to cryptocurrencies or mutual funds. You'll need a broker to allow you to access these types of investments so you can earn returns and begin building wealth.

But, not everyone is ready to open a brokerage account -- and if you act too soon before completing a few key prerequisites, then you could end up regretting your choice to move money into a brokerage account and begin investing with it.

To make sure you're prepared to move forward, you need to do these three steps before opening a brokerage account of your own. 

1. Save up an emergency fund

Before you begin investing, you need to have money saved for emergencies. This should be in a high-yield savings account that is FDIC insured so there's no risk of loss.

Saving an emergency fund can help you avoid being forced to sell investments at an inopportune time. See, when you buy assets such as stocks or cryptocurrencies or ETFs or mutual funds, the value of your investments can fluctuate.

There are times when a market downturn could cause losses. Usually, if you have made sound investments and leave your money invested long enough, you can recover from these downturns. But if an emergency happens at an inopportune time, you could be forced to sell your investments at a loss before they have time to recover. 

To avoid greater risk of loss, you'll need to have some liquid savings to cover emergencies before investing so any money you put into the market can be left alone for the long term. If you will potentially need to access funds within around two to five years, you shouldn't invest that cash. 

2. Develop an investing strategy

You'll want to have a good plan for how to build a diversified portfolio and minimize the risk of investments by exposing yourself to the appropriate level of risk. You'll also want to understand how investments make money and learn the benefits and risks of buying different assets. 

If you develop a strategy before investing, you can make informed choices to build a portfolio that helps you earn a profit over time. You can also avoid making mistakes such as selling a stock because it has a bad day, or a bad month, even though it's likely to perform well over the long term. 

3. Research account fees and requirements

Finally, it's important to research the requirements for opening a brokerage account with a particular company, as well as any fees you could be charged for your account. 

You don't want to try to open an account with requirements you can't fulfill, such as a high minimum deposit or a high minimum balance. And you'll want to avoid putting your money into a brokerage account that's going to come with high fees or costly commissions for buying and selling assets.

By researching different accounts, and making sure you're financially ready before you begin investing, you can maximize the chances your decision to open a brokerage account will turn out to be one that helps you build wealth over the long term.  

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