The Best Investing Strategy For Beginners – Part 1 – Choosing a Broker

Today’s article is for those who are interested in getting start in individual stock investing but don’t know where to start.  Note that investing in individual stocks is not for everyone.  For those who don’t have the interest or are bothered too much by the large fluctuations in price that can be experienced when buying individual stocks, one can do just fine through investing in mutual funds.  Individual stock investing requires a mindset such that one will not become too nervous when a stock she owns falls in price.  It is a long road with many bumps on the way.

The first step in getting started is to establish a brokerage account.  This is an account that will allow one to trade stocks and other securities.  When stocks are purchased they will typically be held by the brokerage house in what is known as the “street name.”   In this situation the investor owns all rights to the shares, including the right to vote on issues and the receipt of dividends.  Should the brokerage house fail the shareholder would also still own the shares – they are kept separate from the brokerage house’s other assets.  Keeping the shares in the street name just allows for ease in buying and selling of shares.  One can also request that the certificates for the shares be sent to one’s address for storage in a safe deposit box if desired.  I would only recommend this if one is planning to own the shares indefinitely, and even then there is little reason to hold paper certificates (other than the fact that they are kind of neat to look at).

In picking a broker there are basically two types – full service and discount.  A full service broker will charge more for trades – typically $60-$80 – but will provide a lot of services and, more importantly, advice on what to buyand how to place orders.  For those who would like such advice, having a full service broker is well worth it.  One can also get accounts with debit cards, check writing, and other services – even rewards points.  Some of the existing full service brokers include Merrill Lynch and UBS.

The other type of brokerage, the discount broker, is suitable for experienced investors who simply wish to trade stocks.  One will be expected to simply enter and order with very little advice from the broker.  In some cases orders may be entered through a website.  In other cases one would call the broker and enter the trade.  Discount brokers include Charles Schwabb and E-Trade.  For those who have some experience, there is also Brown and Company who offers rock-bottom prices but only accepts those clients with a high minimum account balance and considerable amount of experience trading stocks.

In the next post, I’ll go into choosing initial stocks to purchase.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing

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