I Made This Mistake When Opening a Brokerage Account -- and It Has Cost Me Thousands

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  • I began investing in a brokerage account in my late 20s.
  • My initial fear of buying stocks has since cost me thousands of dollars in lost gains.
  • Starting with small amounts can help you get used to investing in stocks.

Playing it too safe with your investments could hurt you in the long run.

It took me until my late 20s to open a brokerage account and start investing there. The reason? My initial goals post-college were to pay off educational debt and build a solid emergency fund. From there, I wanted to start funding a dedicated retirement plan. 

Once I was earning enough to contribute steadily to my retirement plan and an outside brokerage account, I opened the latter -- namely, to give myself more flexibility with my money. Dedicated retirement plans like IRAs and 401(k)s are great because they come loaded with tax benefits. But they also require you to leave your money locked up until age 59 ½. 

With a regular brokerage account, you can access your money whenever you please. I wanted that option, so I started investing outside of my 401(k). 

But the investments I initially chose to load up on weren't the best in hindsight. And had I taken a different approach, I'd probably have many more thousands of dollars to my name today.

The danger of playing it too safe with investments

When I first opened a brokerage account, I put my money into bonds. The reason? I was scared to buy stocks.

Stocks are known to be a lot more volatile than bonds, and I didn't like the idea of potentially losing money. But while bonds may be safer, they tend to deliver much lower returns than stocks. And so by sticking with bonds only for my first couple of years of having that brokerage account, I resigned myself to lower returns -- and lost out on thousands of dollars as a result.

Thankfully, I was able to get over my fear of stocks and started shifting over to them around the time I turned 30. As such, I didn't subject myself to too many years of lower returns in my brokerage account. But still, had I loaded up on stocks from the get-go, I'd potentially have a lot more money than what I have today.

A good approach to buying stocks when you're scared

The idea of investing in stocks can be intimidating when you're first starting out. If you're nervous about buying stocks, start slowly. And also, start small -- invest $300 and see how it goes. Then, invest another $300. And so forth. 

What’s more, most brokerage accounts these days offer the option to invest in fractional shares. This means that if you don't want to buy a full share of a given company's stock, you can buy a piece of a share instead. So, if there's a company whose stock is trading for $1,000 a share and you're nervous to plunk down that much cash on a single share, you can buy one-fifth of a share instead if that's more within your comfort zone. 

Fractional investing wasn't an option when I first started out. Had it been, I might've been more willing to take a chance on certain companies whose higher share prices drove me away. 

Another option to look at is buying broad market ETFs, or exchange-traded funds. This way, you're not banking on specific companies to make you money, but rather the stock market on a whole. 

It's natural to be nervous about buying stocks. And it's also okay to put some of your money into bonds when you're younger. But don't make the mistake of avoiding stocks completely. While stocks come with risk, by staying away from them, you run another risk -- limiting yourself to smaller returns that don't make it possible to meet your financial goals.

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