Published in: Buying Stocks | April 2, 2020
Should I Open a New Brokerage Account During the Coronavirus Crisis?
The short answer is yes, but here's what you should know first.
The stock market has just experienced its sharpest descent into a bear market of all time, and up-and-down swings of 5% or more on a daily basis have become quite common. While we at The Ascent aren't market-timers, historically speaking, if the market has just fallen by 30% or more, it's a great time to start investing for the long haul.
If you're thinking of starting to build a stock portfolio during the novel coronavirus crisis, here are some reasons you should open a brokerage account, as well as some reasons to be cautious.
Reasons you should open a brokerage account now
It's never a bad time to start investing, and that's true now more than ever -- and not just because of the novel coronavirus crisis. Here are some of the best reasons to consider opening a brokerage account now.
- It's free. Virtually all online stock brokers now offer $0 commissions on online stock trades. This makes it more practical than ever for you to get started as a beginning investor, even if you only have a small amount of money. If you want to buy one share in each of your five favorite companies, you can do that in a cost-efficient manner. Some brokers even allow you to buy fractional shares of stock.
- Stocks are down. To be clear, it's entirely possible that the stock market could drop even further. And if the COVID-19 outbreak lasts longer than experts predict, that's exactly what I would expect to happen. However, the market is still more than 30% lower than its recent highs, which represents a fantastic entry point for long-term investors.
- Time is on your side. Speaking of long-term investors, you also have the advantage of time. The longer you allow your money to grow and compound, the better position you'll be in to achieve long-term wealth. And the very nature of time means you'll never have more time to reach your long-term financial goals than you do right now.
- Tons of beginner-friendly platforms. There are some very beginner-friendly online brokers. Some offer a vast library of educational resources that can help you learn all you need to know about investing in stocks. Others offer user-friendly trading platforms that make buying and selling stocks incredibly easy.
Some words of caution
We just went through the list of reasons you should open a brokerage account, and there really aren't any good reasons not to. Having said that, there are some words of caution beginners need to hear, especially in today's volatile market environment.
The Ascent's picks for the best online stock brokers
Find the best stock broker for you among these top picks. Whether you're looking for a special sign-up offer, outstanding customer support, $0 commissions, intuitive mobile apps, or more, you'll find a stock broker to fit your trading needs.
First, we're not advising you to open a brokerage account for the purpose of moving in and out of stock positions every few days. That's called trading, not investing, and is a form of gambling -- especially in a turbulent market like this. It's very easy to lose money with a short-term mentality.
Second, if you decide to start investing during the novel coronavirus crisis, it's important to be prepared for market turbulence. Would you be ok if your stocks fell another 20% from here? Could you tolerate moves of 5% or more in a single day? Your answers to these questions should be a confident "yes" before you start investing.
Third, it's important to understand that you shouldn't invest any money in the stock market that you may need within the next few years. Make sure your near-term spending needs are met and that you have an adequate emergency fund before investing.
It's never a bad time to invest
As a final thought, it's important to emphasize that it's never a bad time to start investing, at least from a long-term perspective. This is even true when the market is near the top -- consider that someone who invested at the market's 2007 peak before the financial crisis (arguably the worst possible time to invest in the past two decades) would still be up by about 50% today, and that's not including the power of reinvested dividends.
Using the wrong broker could cost you serious money
Over the long term, there's been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns. Our experts have ranked and reviewed the top online stock brokers - simply click here to see the results and learn how to take advantage of the free trades and cash bonuses that our top-rated brokers are offering.