Morning! Today I welcome back Derek Sall from LifeAndMyFinances.com, for the second installment of our investing series. You can check the first post, Investing-What is the point? where Derek talked about the importance of investing, even in small amounts. Today, he explains how to start investing.
Do feel like you’re ready to invest in your future? That is a huge step! Before we jump into stock trading though, let’s just be sure that you are prepared for the ups and downs of life (and the market).
How Big Is Your Emergency Fund?
Investing in the market can be risky, so you should first have an emergency fund in place should things go wrong in the market or at work. The standard for emergency funds should be about 6 months of your necessary expenses. If your expenses total up to $2,500 per month, that means that you should have $15,000 set aside in the event of a catastrophe. Rule number one, keep this money out of the market. Your emergency fund should not be tied up in investments, it should be readily available within 24 hours of your emergency. If you have your fund in place, then it’s time to invest.
Editor’s note: I disagree with Derek on that one, my emergency fund is kept to a strict minimum to try and build more wealth investing. That is risky though and if you are risk averse, you should listen to Derek!
Broker or Online Brokerage?
Many people wonder if a broker is truly worth the expense. This largely depends on your expertise in finance. If you went through college and got a degree in criminal justice or judicial law, then you are most likely not equipped for investing on your own. If, however, your degree was in finance or investing, then you most likely have the education to make trades and decide your financial roadmap on your own. Through my experience, I would say that over 90% of people should really have a financial advisor to help them achieve their future financial aspirations.
Investing On Your Own? Choosing a Brokerage
If you have decided that you are capable of investing on your own, then it’s time to choose an online brokerage. This can be quite an important decision, so let’s take a look at how various online brokerage firms rank against one another. According to Online Stock Trading Review, here’s the top 10 online brokerage firms.
- optionsXpress – No maintenance fees, $0 broker assisted orders, $8.95 market trades
- optionshouse – No maintenance fees, $3.95 broker assisted orders, $3.95 market trades
- TradeKing – No maintenance fees, $4.95 broker assisted orders, $4.95 market trades
- Scottrade – No maintenance fees, $27 broker assisted orders, $7 market trades
- Fidelity Investments – Various maintenance fees, $7.95 broker orders, $7.95 market trades
- E*Trade – Various maintenance fees, $45 broker assisted orders, $7.99 market trades
- Charles Schwab – No maintenance fees, $25 broker orders, $8.95 market trades
- TD Ameritrade – No maintenance fees, $45 broker orders, $9.99 market trades
- Sharebuilder – No maintenance fees, $6.95 market trades, $5.95 if you are a Costco member.
- First Trade – No maintenance fees, $26.95 broker orders, $6.95 market trades
My Brokerage Experience
For the most part, any of these brokerage accounts would be an excellent choice. Personally, I have used E*Trade in the past and have never had an issue with their services. In fact, I have let the account sit idle for a couple of years and encountered no fees for maintenance or inactivity. Before selecting your brokerage firm though, be certain that they have a large assortment of mutual funds and index funds available for your investment. Also, check how easy it is to transfer money from the brokerage account to your personal bank account. This can obviously be a very important key in your money management practices.
How did you start investing? Who are you brokering with?