Opening Your First Investment Account? Here’s What You Need To Know

One of the smartest money moves you can make during your lifetime is opening your first investment account. It’s a big step to make and there is a lot of information out there that can be a bit overwhelming.

Yet, in order to start securing your financial future, opening the right investment account from the start, will benefit you in the long-term.

Now, before getting too excited and rushing to open your account, it’s important to know what to look for.

Below, I’ve tried to simplify the process for you and what you need to look for when opening your first investment account.

The below sections are what is covered in this post:

Investment Account Checklist

While you are never too young to begin investing your money, you also should not rush if you are not financially ready.

The stock market can be a roller coaster ride that can play with your emotions (and money) if you are not prepared.

Before considering opening your first investment account, it’s important to be able to checkoff a few items.

Emergency Fund:

Hate to say it because it’s so common and a cliche financial statement, but you need to have an emergency fund.

There are many ranges of cash that you should have saved according to experts, but it’s something you need to determine yourself.

I currently have about 12 months saved, but even something in the 3-6 month range will be good.

The reason for this is when you start investing money, you don’t want to pull any money from your investments. It takes away from your gains and long-term compound interest.

Understand the basics of investing:

Opening an investment account and investing money without understanding the basics, is like jumping out of a plane without a parachute.

Okay, maybe a little extreme but you get where I’m going. I read books and some content online for almost 3 months before opening an account and investing money.

You don’t have to know everything, but it’s good to understand how the stock market works before diving in.

Related: 35 Investing Terms: The Key Words Beginners Need to Know First

Pay off high-interest credit card debt:

I mostly focused on credit card debt here compared to student loans.

I’m just now finishing paying off my student debt and I would’ve missed on almost 8 years of compound interest if I chose to wait to invest.

However, I was able to check off the other boxes here, so it made sense for me.

If you owe money on high-interest credit cards, the wisest thing you can do is to pay off the balance in full. And as quickly as possible.

The interest alone can be a financial killer, where that money can go to your investments instead of your credit card interest.

Opening Your First Investment Account? Here's What You Need To Know

Investment Accounts for Beginners

There are plenty of investment companies and financial services to choose from. In fact, for a first-timer, it can get a bit overwhelming.

How do you choose the right investment account for you?

I’m not going to tell you the best one specifically for you. Why? Well because depending on your financial goals, interests, and the value you see, your choice may be very different than mine.

However, I will give you some of the essentials you need to look for when choosing your investment company and some examples of the companies I think are the best options.

1. What are the fees?

I started with this one as it is probably the most important aspect to look for in your investment account.

What are the fees? What I mean is: account maintenance fees, index funds or mutual funds management fees, rollover fees, etc.

All financial institutions have some fees on their funds and accounts, your job is to eliminate ones with high fees. For me, anything 1% or higher in fees is not worth my time.

Imagine getting an average of 8% returns on your investments each year. And that you have 4 diverse mutual funds selected all over 1% in fees.

Your weighted average expense will be somewhere above 1% on your portfolio and now you are getting less than the 8% returns.

So it might not seem much, but expand that over 10, 20, 30+ years of compound interest and you are leaving thousands and thousands of dollars on the table.

Luckily, there are many options now of lower fees and funds that are under .5% in fees.

Related: Learn how to calculate your weight expense ratio for your portfolio.

2. The types of funds & accounts offered

When deciding on the best investment account to go with, you should also take a look at the types of funds they have as well.

Do they have index funds, mutual funds, ETFs, individual stocks, etc? Additionally, based on your investing goals, do the funds offer the type of diversification you might need?

Typically, you can explore their website and view the prospectus (information about any fund).

This will give you insight and the history of returns, who manages the fund, stocks involved if it is an index or mutual fund, fees, distributions of any dividends, etc.

Additionally, look at the types of accounts you can open.

Like do they offer a brokerage account, individual IRA’s, roller overs, solo 401k, annuities, etc. It’s okay if you don’t understand everything that the company may offer, but it’s good to know there are tons of options in one place.

3. History of the financial company

Something that might get overlooked, but I still find important to know is the history of the investment company itself.

I don’t want to work with or be a part of a company with a shady background or constantly getting negative news.

It’s not trustworthy and you don’t want to find yourself in a financial bind if something big happens to that company.

Look at how long the company has been around, the news about the company, total assets under their management, etc. Get to the know financial companies you might be choosing to handle your investments.

4. Time of settling funds and money transfers

While this shouldn’t be a major make or break in your decision, you should pay attention to this. You want to know how fast your money transfers will settle in your account or to your bank.

This is important if you want to jump on some stocks or bonds, or if you do need to dip into some cash and move it back to your bank accounts.

We are in a fast-paced world where we no longer should have to wait 5-7 days for any funds to settle.

Of course, there will be some delay with most investment accounts. But you should be able to trade while it settles in your investment account and money should not take more than 2-3 days to hit your bank.

5. Security options

Cyber security is crucial and incredibly important to protecting yourself online. Unfortunately, your data sometimes still can get compromised.

This is why you need to not only trust the financial company that you choose, but to ensure that they have strong security measures in place.

I’m talking about pin numbers, text alerts, thumb ID for apps, and other protections for you. As your account grows and you start getting into the six-figure ranges, you want to ensure your money is not vulnerable.

That said, take smart precautions yourself too.

Have a strong password, take advantage of as many security options they have, update the password every so often, and keep account info safe. But it’s good to know the types of investment accounts you may choose are also highly secure and protected.

6. Customer support & services

Lastly, you want to find a financial institution that offers excellent customer service. Not only should they be attentive and helpful, but should also be experts in finance to help you navigate your way to success.

Everyone is at a different knowledge-level and investing can be somewhat confusing. You’ll want access to people who understand your needs and can explain it in simple terms.

Additionally, many various investment accounts offer other services to help you with your financial goals. Whether that is evaluating your current portfolio, helping you choose funds, or setting up other accounts.

There may be extra fees for this, but it’s good to know these services are offered should you want to take advantage.

Types of Investment Accounts

Hopefully, you are still with me. I know the above was a lot, but I do hope it makes sense to you and that you have a better understanding of what good investment accounts should offer.

One last area to consider are what types of investment accounts you might want to consider opening.

Pending on your goals, your savings, and knowledge, what you choose can be different from the next person. Here are a few examples of options you will have.

1. Employer-sponsored investment account

If your company has an employer-sponsored 401k plan, you should be signing up for this first. 401k/403b/457 contribution limits tend to go up, so make sure you follow the IRS government website.

Employers often include a matching contribution to their employees who contribute to the 401k. Meaning, you’re getting a percentage of free money on top of your contribution. Happy dance.

Two challenges though:

  • Many times there is a waiting period before you can join your company’s plan. Usually like 6 months.
  • Also, many times the employer choice is not that great. I had one where all the fund fees were 1.3-2%. I still took advantage of it, but I could not diversify as much with fees taking returns away. Once I left that company, I immediately rolled it out of that plan to my Vanguard IRA.
If you have a company 401k with your employer, you might want to use Bloom’s free 401k Analyzer. This will help you catch hidden fees, get portfolio recommendations, and more. Connect your 401k for free here.

2. Individual Retirement Accounts (IRAs)

An IRA must be owned by one individual and the contribution limits for 2019 were $6,000 on the year.

As you can see, your contributions are limited compared to your employer retirement plan. But again, pay attention to your investment accounts and IRS as limits tend to increase.

However, if you don’t have any other options you can choose the traditional IRA or Roth IRA. Both have individual advantages, disadvantages, and IRS rules in place.

To keep this simple, a traditional IRA can be fully or partially deductible, depending on your circumstances.

Generally, the amounts in your traditional IRA (including earnings and any capital gains) are not taxed until you start withdrawing money in the future.

A Roth IRA is funded with after-tax dollars, so there are no tax breaks for you like a traditional IRA. However, all earnings inside of a Roth account grow completely tax-free, and withdrawals are completely tax-free.

Looking for more info on IRA’s and Roth IRA’s? You’ll want to read more here carefully so you make the best decision and understand all the rules.

3. Individual 401k (solo)

Solo 401k or individual 401k are for those who are self-employed or if you’re a partner in a business where your only employees are the partners and/or spouse.

The business owner can contribute both as an employer and employee. Also C corporations, S corporations, and limited liability companies (LLCs).

Similar to IRA’s, there are rules and contribution limits to having a solo-401k, so ensure if you do work for yourself you understand them.

But, this is certainly an investment account you should open if you work for yourself. Learn more about them on NerdWallet here.

4. Brokerage account

Another investment account example is a brokerage account.

A brokerage account is where an investor deposits money with a licensed brokerage firm, who places trades on behalf of the customer.

In these accounts, typically the individual must claim this as taxable income any capital gains.

Less tax protection compared to an IRA, but you can buy and sell stocks, bonds, index funds, or store some cash in the money market.

Best Investment Accounts to Consider

Okay, so that was quite a bit of information! Before I end this post, I wanted to also provide you with a list of some of the best investment accounts to consider.

Ultimately, where you choose to invest your money is up to you, but these financial companies are some of the top choices.

Each offers different solutions for new investors, long-term investors, or those with little money but want to get started. Even some offer robo-investing options to make it easier for you.

Remember, do your research before opening an account and follow some of the steps above!

There are other investment accounts you might want to consider, but these are some of the best ones in the market. Each offers a unique platform, so choosing is based on your preferences and needs.

What questions do you have about opening your investment account? Something missing from above that others should consider? Let me know in the comments below!