The investing world is far from simple. There’s a huge number of potential investments and ways in which to handle them. What complicates investments further is that for so long, brokerage firms and wealth management professionals handled them with little day to day interest from the people supplying the money. 

A brokerage account is the main way in which you can invest. Brokerage accounts are the key method in which people can access purchases like stocks, bonds, mutual funds, ETFs and other investment opportunities. Purchases and trades are performed in the brokerage account. Brokerage accounts are crucial so that you can keep your investments separate from daily finances. It allows for easier trading and easier management. 

Learning More About Brokerage Accounts

Brokerage accounts are taxable accounts. This means that your investment profits are going to be considered taxable income and you’ll need to pay taxes each year. However, since the money is taxed, there’s no limits on transactions like other investment accounts. If you want to get out of all your investments and liquidate into cash, that's completely your option. This is different from retirement investment accounts. Those accounts are only taxed when the account is finished and closed. 

Online brokerage accounts allow people to handle all of their own investments. Many online accounts have very low fees. For example, “You Invest” by J.P. Morgan has no trade, annual or inactivity fees. You also don’t need a minimum balance. This account is designed to let people do their own investing, but perhaps encourages them to make use of J.P. Morgan financial advisors at a fee later. 

Managed brokerage accounts are run by a designated investment manager. These accounts are hands off. You allow an investment manager to take control of the account using the ideas and risk principles of the investor. Another option is to use a “robo-advisor”. These come with less fees and run off of investment algorithms. Robo advisors are less expensive than using a human advisor. That being said, many people find robo advisors very useful if they want to choose an investment strategy, but want to avoid the specifics of their investing platform. It should be noted that managed brokerage accounts can have higher requirements to open them. Those with a financial advisor will often need a minimum level of investment funds to get access to their advisor. The management fee of the account will often be a set percentage of the principal each year. This gives advisors an encouragement to increase the funds in the account as they will get a larger management fee if they make more money for their clients. 

Questions and Answers

Investing is difficult. It’s likely that you have some additional questions about brokerage accounts. These are some of the common questions that can crop up when considering a brokerage account. 

Q: Should I open an account as a beginner? 

A: Opening an account doesn’t mean that you’re immediately investing hundreds of thousands of dollars. Take your time to learn about the market. An unmanaged online account will let you invest as you feel comfortable with it. You’ll need a brokerage account eventually to make trades anyway. 

Q: Is one brokerage better than the others? 

A: When it comes to managed brokerage accounts, you’ll want to interview the potential investment managers. You need to feel comfortable with anyone you are going to be giving access to your finances. 

Q: Is it difficult to open an account? 

A: As long as you’re over 18, you can usually set up a brokerage account in about 15 minutes online. After that, you’ll transfer funds in and invest as you want to. 

Q: Are there types of accounts? 

A: There’s two main types of accounts. Cash accounts use your money directly. Margin accounts let you borrow money from a brokerage for your trades. These can be rather risky as you’ll have to pay interest on the money you take for your margin trades.