Getting Started as an Investor

You’ve made the decision to start investing. But where do you begin? The steps you take will depend upon your goals, preferences, comfort level and financial situation.

You don’t need a lot of money to begin investing—many platforms have low or no account minimums—and you can continue to develop your investment strategy over time. However, you should consider the type of account and level of support you want, as well as your financial circumstances and goals, before getting started. 

Ways to Invest

Many people choose to begin investing through tax-advantaged accounts. An easy way to get started is often through your employer’s retirement plan, such as a 401(k) or 403(b). Automatic contributions deducted from your paycheck simplify the process. Your employer might also offer matching contributions, which is essentially free money. If your employer doesn’t offer a retirement plan or you want a little more flexibility, you might consider a retirement account like a traditional or Roth individual retirement arrangement (IRA), also known as an individual retirement account.

If you’re interested in ways to invest for children, a college savings account can help you plan for education funding. Retirement-focused accounts like custodial IRAs and Trump Accounts also offer opportunities to save for a child’s future.

And to invest funds without use restrictions, you can choose a taxable brokerage account or investment advisory account, which doesn’t have the contribution or withdrawal limits of more specialized accounts. 

Evaluating Investing Services

If you’re investing outside of an employer-sponsored retirement plan, you’ll have to choose the type of investing services you’d like. Considering the level of services you want, the types of investments you’re interested in purchasing, and the related fees and costs can help you with this decision. These can vary by firm and depending on the type of account you have.

When thinking about opening an investment account, your general choices are:

• Full-Service Brokerage – A traditional, full-service brokerage account offers you a relationship with a FINRA-registered financial professional who can provide investment recommendations and carry out your orders to buy and sell securities. Full-service brokerage firms generally offer online and phone support and often have physical offices as well. Brokerage account fees generally are transaction-based, so you’ll typically pay a commission or markup when you buy or sell a security.
• Self-Directed Brokerage – If you’d prefer to choose your own investments and manage your portfolio yourself, you can open a brokerage account using a firm’s online trading platform—which often includes website and mobile apps that allow you to buy and sell securities independently—or you can purchase mutual funds directly from a fund company. While some firms focus solely or primarily on online, self-directed services, many full-service brokerage firms also offer self-directed platforms. Self-directed investing typically features direct control and lower costs than full-service accounts. With self-directed investing, you make your own investment decisions and support options might be limited; however, most firms offer educational and research resources to help you.
• Investment Advisory – With an investment advisory account, an investment adviser typically provides ongoing investment advice and works with a brokerage firm to execute your trades and safeguard your assets. Many investment advisers offer online and phone support and have physical offices as well. Investment advisory fees are usually a percentage of the total amount of assets held in your account and are typically charged on a periodic basis, such as quarterly. Investment advisory accounts that are managed by individual investment adviser representatives typically require a higher minimum investment amount compared to brokerage accounts.

However, not all investment advisory services come with high barriers to entry. Some firms offer automated investment advisory services, known as robo-advisers, which use an algorithm to automatically build and manage a portfolio for you based on an online assessment of your goals, risk tolerance, time horizon and overall financial situation. While robo-advisers might provide less personalization and support than full-service investment advisers, they typically have lower costs. Some firms offer hybrid options that combine automated investment management with access to a human adviser if you need more assistance or have complex questions.  

The specific services you receive and fees you pay with a brokerage firm or investment adviser will depend on the agreement you sign when you open your account. In addition, many financial firms offer both brokerage and advisory services. Both brokerage firms and SEC-registered investment advisers (RIAs) are required to provide prospective clients with a customer relationship summary (Form CRS), which can help you compare the respective services and costs.

Preparing to Open an Account

Your next step toward becoming an investor is to select a firm or an investment professional. A good place to start is to get recommendations from trusted family members, friends or colleagues who already invest. Then do your own independent research. Try an internet search to find any relevant information, and use FINRA BrokerCheck to research the background and experience of both professionals and firms. Be alert to signs of fraudsters who might be impersonating real registered professionals or firms.

Along with thinking broadly about which investing services and firms best fit your needs, here are some additional factors to consider before choosing an investment professional or opening your first account:

• Financial Situation – Align your investment objectives with the rest of your financial life, including efforts to pay off debt, establish or maintain an emergency fund, and meet any other financial obligations or goals you have. Investing shouldn’t cut into other necessary spending.
• Risk Profile – Make sure your investment choices are in line with your time horizon and your risk tolerance.
• Product Choices – Firms vary in the range of investment products they offer, and products might also vary by account type. Before opening an account, confirm that the firm—and the account—offers the types of investment products that align with your goals.
• Technology – Are you comfortable with technology and mobile apps, or would you prefer phone or in-person service and support? Consider whether you’d value the ability to call and speak with someone when you have questions, or if you’d prefer a purely digital experience.
• Fees – Ask about the fees and other costs involved with the accounts and level of activity you’re considering. Remember, if you’re receiving recommendations or advice, these are services you’ll pay for.
• Taxes – Be sure you understand how investing might impact your current and future tax liabilities. Consider talking with a tax professional about the tax treatment of different types of investment accounts.
• Disclosures – Carefully review account agreements and other disclosure documents. Ask questions so you fully understand the products and services offered. 

Once you’ve opened an account, you’ll want to learn more about investment products and begin evaluating how to allocate and diversify your assets.

There are multiple legitimate pathways for getting started as an investor. Taking time to thoughtfully consider your personal needs, circumstances and financial goals can help you choose the path that’s right for you.

Learn more about investing.