Want to open your first brokerage account? Follow these 4 easy steps (2024)

The best time to start investing is as soon as you're able to. The second-best time to start is now.

That's what a chorus of financial professionals will tell you, and the math behind the advice is solid. Getting your money in the market earlier gives compound interest more time to work its powerful magic.

Still, there are plenty of factors that could be keeping you from investing. Maybe you feel you have to devote any excess cash toward other financial goals, such as paying down high interest debt. Or maybe recent market uncertainty has you hesitant to put your money in.

When choosing a brokerage, if you know the name of the company (Fidelity, Vanguard, Schwab, E*Trade, etc.) it's hard to go wrong.

Thanks to a decades-long price war, virtually every major brokerage now offers commission-free stock and exchange-traded fund trading, robust lists of mutual funds you can buy with no sales charge or transaction fee, attractive trading platforms and plenty of educational resources for investors.

One thing worth considering on this front is where your workplace retirement account is held, if you have one.

"If your 401(k) is at a major platform, it can be useful to have your other accounts there, too, so you can view them side-by-side," says Christine Benz, director of personal finance and retirement planning at Morningstar. "Trying to minimize your number of providers makes that a good first stop in your search."

"A great starting point is thinking about what your goals are for the money," says Benz.

If you have a short-term goal, such as saving for a down payment on a home, you'll likely want to open a taxable brokerage account. You'll owe taxes on any gains and dividend income your investments accrue in such an account, but crucially, there are no rules around when and how you can withdraw the money. "This type of account is just going to give you the most flexibility," says Benz.

If you're saving for a long-term goal, such as retirement, gravitate toward an individual retirement account. Contributions you make to a traditional IRA are deducted from your taxable income in the year you made the contribution, but you won't be able to withdraw the money without penalty until you're 59 ½.

Roth IRAs, conversely, are funded with money you've already paid tax on, so you don't get an upfront tax break. In return, your money grows tax-free, and provided you follow the rules, you can withdraw the money tax-free in retirement.

Once you decide on an account, you'll have to fill out an application. You'll generally need to provide a form of identification, such as a driver's license or passport, and your Social Security number, along with other personal financial information.

You'll also have to figure out how to fund your account. Generally, you can make a deposit by linking a bank account, ordering a wire transfer, cutting a check or transferring funds from another type of brokerage account.

Brokerages usually let you make a deposit without charging a fee, but be sure to read the fine print before putting your money in, says Benz. "Look for the method that will cost the least," she says.

Once you find a method that works for you, consider setting up recurring deposits. Virtually every brokerage will offer a step-by-step guide on how to do this.

"I'm a huge believer in setting up automatic deposits," says Benz. "That way it's not just one and done. It's a fabulous way to instill discipline into your investing plan."

Once you transfer money into your account, it will be held in a so-called "sweep account" — a default low-interest cash vehicle. You can use that money to purchase any kind of investment your brokerage offers, but if this is your first time investing, focus on broadly diversifying and keeping your costs low.

The simplest solution for long-term investors, says Benz, is a target-date mutual fund. These all-in-one funds correspond to the year you hope to retire and hold an asset mix that grows more conservative as you age. If you're shopping among mutual funds, start with your brokerage's list of "NTF" funds — investments that can be purchased with no transaction fee or sales charge.

You may also want to consider low-cost ETFs, which track the performance of broad market indexes. Unlike mutual funds, which can come with purchase minimums, ETFs can be purchased one share at a time, like stocks.

Once you have your investments in place, congratulations. Other than occasionally checking in to make sure your portfolio is still in balance, you can mostly sit back and watch the returns roll in.

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