Should You Open a Brokerage Account if You Don't Understand Stocks?

You may be surprised at the answer.

Most people associate discount online brokers with investing in equities. After all, many brokerage firms let you buy stock in thousands of different publicly traded companies -- and they advertise that you can do so without paying a commission in most cases.

Investing in individual stocks can be a good way to earn generous returns if you understand how to research which companies to buy shares in. But not everyone is interested in or good at doing so. And if you don't understand stocks and don't want to learn about them, you may wonder whether it is even worth it to open a brokerage account.

Brokerage accounts aren't just for buying stocks

The good news is, you do not need to understand how to buy stock shares in individual companies if you want to invest -- and you can open a brokerage account and make money even if you never buy a single share of a particular business.

That's because the best brokerage firms offer a wide variety of different asset classes to invest in, including those that require no specialized knowledge of how to pick stocks at all. For example, you can generally buy exchange-traded funds (ETFs) or mutual funds designed to give you exposure to a particular type of asset class. These funds pool investor money and buy many stocks so you own a very small ownership stake in tons of different companies without having to pick each one.

You could, for example, buy an exchange-traded fund that will invest your money in a mix of small companies (small-caps) or in a mix of larger ones (large-caps). Or you could buy an ETF that gives you broad exposure to the market as a whole, such as an S&P 500 ETF that tracks the performance of 500 of the largest companies in the U.S. across all different industries.

You do not need the same type of specialized knowledge to invest in ETFs or mutual funds as you would if you purchased shares of individual stocks. But opening a brokerage account and investing in these funds allows you to get your money into the stock market so you can start earning generous returns that help you build wealth.

How to pick a brokerage firm if you don't understand stocks

If you do not understand how to buy shares of individual companies -- or you aren't interested in doing so because of the risk and research involved -- then you'll want to find a brokerage firm that provides you with many other investment opportunities.

Specifically, you should look for a broker that specializes in commission-free ETFs or in no-load mutual funds, so you can buy funds that do not charge you high fees to invest. You'll also want to make sure your broker has solid screening tools that allow you to narrow down the list of funds you're interested in purchasing based on the types of assets they invest in and the fees they charge.

By finding a broker that makes it easy and effortless to buy these simple investments, you can streamline your investing process and find the right assets that maximize your chances of earning a profit.