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Module 3: Step Right Up and Open An Account.

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By now you should have a sense of 1) if it’s the right time to be investing and 2) which type(s) of account(s) you want to utilize.  The next step will be to select the right financial tools to adopt, open accounts, fund them, and setup recurring investments.  We will be looking primarily at brokerage solutions – tools to trade and manage portfolios – and not getting into products for banking, insurance, and the like. Just wanted to clarify that up front. 

 

What we’ll cover in this module:

  • Types of products out there

  • Features to consider. Understanding what you need

  • Requirements to open an account 

  • Recommendations

 

As a FYI, some of the information presented here will be most relevant to US-based investors, but features/strategies discussed are more general in nature. 


Disclosure: While we’re at it, please know that supermoment may receive compensation through partner links displayed below. But remember, this will always be at $0 to you or even at a discount, with the added bonus that a large part of any proceeds will be donated to Kiva and Accion to support entrepreneurs and promote financial equality.  => open an account = fund a new business.

Intro

There has never been a more exciting time in terms of technology to invest on your own. In the era of $0 commissions, there are effectively no barriers for the individual (retail) investor to access markets and trade.  While brokers have been commoditized by this to a large extent, there are still differences to be mindful of when choosing the platform you want to use. 

 

Brokerage Features: Things like accounts types (IRA, 529…), trade control, access to international exchanges, options trading, fees, margin, security selection, and investment universe. 

Product Features: User experience, mobile app, security, integrations, etc. 

These are the differentiating factors that we’ll compare to find the right fit.

Types of Products.

We’re going to classify our brokerage products into four main camps as a starting point. 

 

Camp 1.  Traditional eBroker (Incumbents):  Full-service, comprehensive solutions. These platforms have been around for 10+ years and are efficient and feature-rich. Where they start to lose ground is around modernization and usability. 

 

Best for: Self-directed investors looking for research and full access to the universe of investments. 

Best of: ETRADE

 

Camp 2.  Robo-Advisors (digital advisors):  Automated investing into ETF portfolios. Relatively new products, modern experience, support regular and tax-advantaged accounts but give up a ton of control and other features. Lower fees than keeping your money with a traditional advisor but fees nonetheless.  These products are also expanding more into traditional banking, so there is the benefit of having a high-interest savings account alongside your investments to simplify your world. 

 

Best for: Hands-off investors looking to simply participate in the market. 

Best of: Personal Capital

 

Camp 3.  Disruptors:  Mobile-first trading, pioneers of the $0 commission.  Great modern experience and enhanced usability. Downsides are having single accounts and no access to mutual funds, but able to trade some cryptocurrency if that’s your thing. Difficult if not impossible to access research and pretty important things like company fundamentals. 

 

Best for: Active investors or those looking to trade options and crypto. 

Best of: Robinhood 

 

Camp 4.  Hybrids:  Modern solutions that offer a blend of features from the first three camps. Free trading, automation, mobile applications, multiple accounts, and supporting features such as savings/checking accounts or loans.  

 

Best for: DIY investors looking for a simpler option to manage their retirement accounts. 

Best of: M1 Finance and Ally Invest

 

Brokerage Features. 

Important considerations when choosing a platform that’s right for your investing needs:

Very Important

Account Types: Can you have multiple accounts on the same platform? This is an important consideration as most people want to have a taxable and tax-advantaged investment account. 

Asset Types: This is an important consideration. Does the broker provide access to the full universe of investments? Stocks, ETFs, Mutuals, REITs, crypto, options, futures, etc. The most important being the first three here for the majority of investors. 

 

Investment Control: Are you able to make immediate decisions regarding what you want to buy/sell? Are fractional shares available? 

Kind of Important

Research, Analysis, Screeners: Can you access reports from industry analysts? Does the platform have decent charting tools to conduct basic technical analysis? And most importantly, can you use a screener to identify ETFs, Mutual Funds, and stocks? (The only reason this isn’t in the ‘very important’ category is you can always supplement with a free option like Yahoo Finance)

Fees: Anyone charging commission on trades is a dinosaur, but look for other fees such as annual platform charge or  options contracts. If you are looking for mutual funds, look for brokers that have arrangements in place for “no load’ and “no transaction fees” for accessing mutuals. 

Dividend Reinvestment: Can you setup automatic reinvestment of distributions? This is a nice thing to have to help reinforce consistent investing and dollar cost averaging. 

 

Adjacent Products: Does the brokerage offer banking solutions, managed portfolios, loans, and other financial products? 

Just Detail

International Markets: If you want to access say the London Stock Exchange, there are only a few brokers that can provide this. (It’s not really necessary for the vast majority of investors) 

 

Margin: Some brokers will have margin options available. Margin is when you borrow against the assets in your account => leverage => more risk. This is suitable only for sophisticated, active investors. If you believe this would be relevant to you now or in the future, check the interest rates offered by the brokerage. These are typically well north of 5% but can vary greatly. 

 

Order Types: Can you place market, limit, stop orders when making transactions?

Product Features. 

What about the other side of the coin? How well does the product work? Can you accomplish your task without being frustrated? This stuff matters. 

Very Important

User Experience (UX): Is the performance of the website or app smooth or buggy? Are you having to login every 5 minutes? Is it impossible or intuitive to navigate the platform? 

Mobile: Is there a mobile solution available? Does it work well enough or does it feel like it was built for an iPhone 3?  

 

Portfolio Metrics: Can you easily understand how your investments are performing? 

 

Kind of Important

Linking Accounts: Can you easily link your external accounts? Bonus points for not needing to wait 3-7 days to confirm deposits. 

Rebalancing/Automatic Investing: Does the product offer portfolio rebalancing? Are you able to set up recurring investments? 

 

Dashboard: Is there a command center where you are able to see a full overview of your accounts/investments and complete actions? Or are you constantly jumping between sections of the website to get stuff done. 

Just Detail

Look and Feel: Is the product designed well? Is the user interface clean and intuitive?

How to Open an Account.

The hard part is determining which platform(s) you want to use. Opening and funding your account is pretty simple. 

 

Here’s the process:

  1. Submit an application.

    1. Personal contact info

    2. Employment

    3. Investing Profile and Experience

    4. Social Security # or Taxpayer ID

    5. Sometimes a government issued ID 

  2. Fund Account.

    1. Link your bank account

    2. Wire or ACH transfer

    3. Or, ACAT transfer (move securities from one account to another) 

    4. Wait for funds to clear. Immediate to 5 business days usually. 

  3. Start making moves. 

 

Recommendations. 

Let’s do some comps across each of the product categories.

It really comes down to a few things:

 

  1. How much time do you want to spend managing your account and/or doing research? 

    1. None: Camp 2 (Best of: Personal Capital) 

    2. Monthly/Quarterly: Camp 1 or 4 (Best of: Etrade and M1 Finance) 

    3. Daily/Weekly: Camp 3 or 4  (Best of: Robinhood and M1 Finance) 

  2. Do you need multiple accounts or IRA/Roth accounts? 

    1. Yes: ETRADE, Ally Invest,  or M1 Finance

    2. No:  Any option 

  3. Are you looking to scratch an itch for stock picking or options trading?

    1. Yes: Robinhood

    2. No: Anything else 

 

There’s no right answer to any of these, however, you probably don’t want to just have a Robinhood account and spend your time speculating. For most individuals, having 2-3 products makes sense and opening your first Roth or IRA account on ETRADE, Ally, or M1 is a fairly safe bet.

 

 

Dig Deeper:

How to Open an Account (SEC)


Disclaimer (sorry): Remember, supermoment does not provide tax, investment, or financial services and advice. Supermoment isn’t a registered investment advisor or CPA. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. In other words, it’s general info that is meant to educate. And you know the mantra, past performance is not indicative of future results. Investing involves risk including the possible loss of principal.