Start Investing Now – Your Step-by-Step Guide #1…

Get Into the Wealth Creation Game

And it is a game, make no mistake about that. So, how did you learn to play schoolyard games? Did you read all the expert’s blog posts? Hire a coach? Learn ALL the rules before you picked up a ball or bat?

Or did you start small, dip your toe in the court, collect a few bruises? Learn from your errors?

I’m going to guess the later was more your learning style. And I’m going to suggest you adopt it to learning to invest in the publicly traded equity, debt and commodity markets.

Loosen up, get a bit excited. Expect some losing streaks before you start to play consistently well.

But, since this is a grown-ups game, one not many people are taught as they mature, let’s go over a few basic rules and explain how you start playing.


Brokerage houses control access to the markets. You will need an account at a brokerage. Most people have an account through a work related program (401K) or an individual account at a discount broker usually accessed through the intern

et. Rich people have more options – brokerages and banks have separate wealthy client services.

So, STEP 1,

you’ll open a brokerage account.

Because we’re going to practice before playing with real money, you might want to try more than one. Fill out the online application and print and sign any required documents but DO NOT fund the account (send them money) until after you’ve taken them for a test drive.

You’ll need the same documents and data to open any standard account:

Social Security or other tax identification number.

The rules of the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA)—which regulate the securities industry-require brokerage firms to ask for this information for several reasons.

Like banks, credit unions and other financial institutions, brokerage firms must report to the Internal Revenue Service the income you earn on your investments. In addition, under the USA PATRIOT Act of 2001, financial institutions may use your Social Security number to verify your identity when opening brokerage accounts to help prevent money laundering and terrorist financing.

Driver’s license or passport information, or another form of government-issued identification.

This, too, is to comply with the USA PATRIOT Act.

Employment status, financial information including annual income and net worth and your investment objectives.

Collecting this information helps your broker to fulfill regulatory obligations. If your broker is recommending investments to you, SEC and FINRA rules require them to collect this information (and it helps your broker determine suitable investment recommendations for you).

You should describe your financial goals, your willingness to tolerate investment risk and when you expect to need the funds in your account.

You’ll also need to indicate how you will pay for your transactions, how any uninvested cash will be managed and who will have control over your account.

You’ll need to be able to answer these questions:

Cash account or margin loan account?

In a cash account, you must pay for your securities in full at the time of purchase. In a margin loan account, your broker can lend you funds at the time of purchase, with the securities in your portfolio serving as collateral for the loan. This is called buying securities “on margin” and you will incur interest costs, just as with any other loan.

Be sure to read carefully your new account application and any other documents that your broker gives you about margin loan accounts and understand how these accounts work before you sign up for one. For more information about margin loan accounts, read FINRA’s Investor Alert, Investing with Borrowed Funds: No “Margin” for Error.

How to manage your uninvested cash.

Sometimes there is cash in your account that hasn’t been invested. Your brokerage firm typically will automatically place or “sweep” that cash into a cash management program.

Who will make the final decisions for your account?

You will have final say on investment decisions in your account unless you give “discretionary authority” in writing to another person, such as your financial professional. With discretionary authority, this person may invest your money without consulting you about the price, amount or type of security or the timing of the trades that are placed for your account.

Some firms allow you to indicate who has discretionary authority over the account directly on the new account application, while others require separate documentation. There may be other types of authority that you may provide over your account, including a power of attorney and authorized trading privileges. Make sure you think through the risks involved in allowing someone else to make decisions about your money.

Here are the some things you want from your broker:

Reasonable prices.

Comparing the prices at brokerage houses is anything but easy because each house identifies its own pricing criteria: Some base prices on how much money you have in your account or how many trades you make per quarter; others use that criteria but also consider the number of shares you trade at any particular point, and so on.

Good service

They pick up the phone without putting you through voicemail gymnastics

Good advice

If you think you’re going to need expert opinions.

A user-friendly Web site

Or, if you like doing business with real human beings, a service center near you.

Incentives for opening an account

These can run the gamut from a certain number of free trades to laptop computers.

Before choosing, always look at the entire brokerage package, which includes not only the price of trades but also total account fees.

Now, pick one (or more) of the following brokerages and open an account:

>Start with these from a Kiplinger survey in 2012 (


It isn’t the lowest-cost firm — it charges you $9.99 per transaction — but its high scores in investment choices, user experience, and research and tools propelled it to the top of the list.

According to the company, customers have access to more than 50,000 bond issues. Plus, E*Trade offers access to trading on 40 foreign exchanges from Austria to South Africa — more than the typical 20 or so at other online brokers. E*Trade also lets you trade 92 exchange-traded funds without paying a commission.

Nearly all firms let you customize your viewing experience, but E*Trade does a better job of it than most of the others. Just click, drag and drop, and you can see what you want to see on your online account summary page, where you want to see it — and that adds up to a great user experience.

As for customer service, E*Trade outdid the other online brokers with its speedy responses to e-mails and its (mostly) correct answers. The firm says it has been focusing on improving customer service, and it showed.


When it comes to research and tools, Fidelity wins the race. The firm offers 36 savings, tax and retirement calculators. It also provides stock research from 12 firms, including Ned Davis and Ford Equity Research.

Fidelity’s investment choices also scored well with us. It offers 31 no-fee ETFs, the third most of our picks, and 1,710 no-fee mutual funds, also ranking it third. Fidelity also reaped top marks for its banking services despite having no bank affiliation.

But fees were a downer. Fidelity charges customers a whopping $75 to buy shares in a mutual fund that is not included in the firms’ no-transaction-fee programs. To close a retirement account demands $50.

And then there’s its customer service: By phone, e-mail or chat, we got varying responses to a question about whether a Pimco bond fund carried a $75 fee to buy it (the fund is clearly marked on Fidelity’s Web site as a no-transaction-fee fund). The correct answer: There’s no charge to buy the Pimco fund, but you will get slapped with a $75 fee if you sell within 60 days of purchase.


Scottrade scored well with us for its low fees and good banking services. The firm charges just $7 per transaction for stocks and ETFs and $17 for mutual funds outside of its no-transaction-fee program. It’s also fee-friendly on banking services, offering no-fee checking and free ATM withdrawals. But Scottrade does charge an annoying fee here and there. For example, you’ll be dinged $2 a month if you want to get a paper statement in the mail.

In customer service, Scottrade suffered a low score. We’re still waiting for a response to an e-mail inquiry we sent in July.


It’s probably not a surprise that TradeStation ranks high overall in the category of investment choices. The firm was founded in 2001 by brothers who developed their own trading platform in the 1980s after they found others lacking. You have to download a software program to run it, but if access to bonds and options is your thing, this firm is for you.

TradeStation scored poorly when it came to its research and tools, as well as customer service. It does offer some tools, but it can’t compete with the sheer number of tools and information sources offered by the bigger firms. And for banking, we awarded the company no stars — it does not offer banking services at all.


Firstrade scored highly on investment choices. It offers access to more than 6,000 mutual funds, but only 507 for no transaction fee.

Otherwise, this firm ranks in the middle of the pack. It provides some tools — including retirement-planning calculators and screeners for stocks, bonds, funds and options — but nowhere near the number of tools and information sources offered by the bigger firms. It also offers an iPhone app that lets you trade stocks and options but not bonds or funds.

Charles Schwab

Schwab comes close to a perfect score in the banking category. You can pay bills and deposit checks through the firm’s phone app, but its iPad app doesn’t have the photo-deposit feature (Schwab says that it’s working on it).

For investment choices among no-fee mutual funds, Schwab stands the tallest. The firm offers 2,263 no-load funds without transaction fees, handily beating out second-place TD Ameritrade with 1,881 no-fee funds and third-place Fidelity with 1,710 no-fee funds.

Schwab lost points with us on customer service. The firm does not offer a chat feature and, worse, it failed to respond to an e-mail.

Merrill Edge

“Google it.” That’s not what you want to hear when you call your broker for help. But that’s the response we got from a Merrill Edge customer-service rep when asked if a specific bond fund carried a front-end sales charge. It’s also the reason the firm landed at the bottom of the list in customer service.

Merrill Edge also fared poorly on investment choices. The firm’s range of offerings fell below average nearly across the board — from no-transaction-fee funds and no-commission ETFs to corporate bonds, foreign bonds and even IPOs.

And when it comes to costs, Merrill Edge punishes customers for moving money out: It will cost you $30 to wire money and $75 to move an IRA account. Although Merrill charges just $6.95 for stock trades, it costs $39.95 to buy funds outside of its no-transaction-fee network (the group average was $32) and $44.95 to execute a trade with a phone representative (group average, $27).

Merrill Edge did score perfect marks on user experience and banking. It helps to be tied to an actual bank — Merrill Edge is owned by Bank of America.


Just2Trade has a snazzy Website, with an up-to-date design and customizable click-and-drag windows. But the firm doesn’t have a smart-phone app. And its number of tools and amount of research information are limited.

To trade stocks, bonds and funds, Just2Trade is light on costs — it charges only $2.50 a transaction. But it slaps you with a $50 levy if you transfer your IRA to another firm. And it charges $35 a year merely to keep your IRA.

The firm’s customer service also left something to be desired. One of its reps suggested we read the prospectus — not a bad idea on its own — to find out whether a fund levied a load.


ShareBuilder earned high marks for its user experience and banking services. It offers both bill payment and check deposit on its phone and tablet apps but doesn’t reimburse fees incurred when you use an ATM outside its network, and that held the firm back in this category.

But the firm’s investment choices, tools and research information were lacking. ShareBuilder also didn’t offer a chat feature for customer service.

Other brokerages include in your research include:

  • TDAmeritrade
  • Oppenheimer
  • Vanguard
  • Wells Fargo
  • USAA

If you’re investing through your employer’s benefits program, you’ll be required to use their brokerage but you often get lower fees or additional services. Just be sure you read the agreement and fill in all the information needed to set it up as you want it. When you leave the employer, you can roll the funds over into a personal brokerage account.

Remember up top when I said DO NOT fund your account yet? And maybe open more than one account? Well, follow along with STEP 2 to find out why!

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Already have a brokerage account? Like ’em? Hate ’em? do tell in comments!

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