In my previous post meant to help people attain basic financial literacy I covered basic banking products, which are the foundation of wealth building. In this post I’ll expand into the world of brokerage accounts. Brokerage accounts are exciting on one hand because they are a critical wealth building tool. On the other hand, they can be very dangerous because if one uses a brokerage account in the wrong way then that person can create financial misery for themselves. My goal with this post is to help you understand the safe way to utilize a brokerage account so that it truly is the vehicle that will ultimately ensure your financial success over the long-term.
When I wrote about banking products I mentioned how they are safe products that can return between a little more than 0% to around 4% (as of early 2025) without risking the capital that you put into those products. Brokerage products have the capability of earning you much more than 4% a year and also open you up to the possibility of earning dividends, which can really accelerate your wealth building process. On the flip side, brokerage products do not guarantee your initial capital so it is possible to lose some, or even all, of your investment. That doesn’t stop millions of people from transacting brokerage business daily and as long as you don’t act foolish you can build a very solid nest egg as long as you exercise the winning traits of patience and discipline.
A brokerage account will give you access to products such as money market funds, mutual funds, individual stocks, bonds, options and more. For the purposes of this post I’m only going to go into money market funds, mutual funds and Exchange Traded Funds (ETFs) in any level of detail. These are the most basic investments you can access with a brokerage account and also some of the safest. And while they’re not as safe as a savings account or a Certificate of Deposit (CD), they also offer the potential of much greater financial returns in the long run. Opening a brokerage account and making transactions is quite simple these days and can be done completely online. The innovation of online brokerages has made available tools that were once only available to wealthy people who dealt with stock brokers. While this has been great news for people who are patient and disciplined investors it has also been tragic news for people getting caught up in the hype of investing fads or those determine to get rich fast no matter what the risks. With all that said, if you want to build financial wealth you need to have a brokerage account and you need to invest regularly.
I’m not here to sell you on any specific brokerage firm but I will note that as of 2025 the top 5 brokerages (based on assets under management) are: Vanguard Group, Charles Schwab, Fidelity Investments, JP Morgan Chase & Co. and Merrill Wealth Management. Two smaller brokerages that are worth noting are E-Trade (a pioneer in the online investing space) and Robinhood (a newer company that has become popular with younger investors). Whichever company you decide to sign up with, the same basic types of products should be available and in some cases there may be even more exotic products, although I think the exotic products are best worth avoiding.
Once you sign up for a brokerage account you’ll need to have a way to fund your investing. You can do that easily by registering one of your bank accounts (probably your checking account) using the brokerage’s online system. By connecting your bank account to your brokerage account you can transfer money that you want to invest initially and then later if you cash out some of your investments you can transfer money back to your bank account. When you first transfer money to your brokerage account it will not yet be invested. Brokerages usually have a default money market account that the transferred money stays in until you pick an investment. Think of this like a regular low interest savings account because your money won’t earn much interest there at all. The point of moving money into your brokerage account is to invest it anyway.
So how much do you need to transfer over to get started? Believe it or not there are some mutual funds that will let you start investing with as little as one dollar with subsequent investments as low as one dollar. More common initial funding requirements are either $100 or $500 but they can also be higher. It’s likely that the brokerage you sign up with will have a certain number of preferred funds that you can access with low minimum and subsequent investments. Those are the types of funds that investors who are starting out with limited resources should look for. The important thing to take from this section is the fact that you can get started investing with very small amounts of money, which is something that was not the case when I started to get interested in investing over 25 years ago.
The next subject I’ll touch on is one that is cause for controversy, especially among younger investors. That subject has to do with your investing strategy. I mean, what is it that you should actually be trying to do when you get started with a brokerage account? If you spend any time online you’ll likely see people who claim to be superstar traders looking to convince you that they’ve found a strategy that can’t lose. They will also likely be very happy if you agree to sign up for a paid course so that they can show you what they do. Avoid such people. You don’t want to be a trader. Traders are constantly moving in and out of investments in search of the perfect investment that will yield them a 1000% gain in a short period of time. While that sounds great it is not realistic. The fact is that nearly all independent stock traders lose money regularly. They talk up any gains they achieve quite loudly, but you’ve no way of knowing if those gains are real. It’s more likely that these people are earning money due to their “influencer” status online and due to commissions from the trading courses they are selling. What you want to be is an investor.
A true investor accumulates positions in securities and holds them for the long-term. True investors usually get rich quite slowly but they don’t ever get wiped out (like many traders do) and they’re never in fear that their investing strategy is a poor one. Warren Buffett, the Chairman of a company called Berkshire Hathaway, is a legendary long-term investor and also one of the richest people in the world. This is a man that no one would call sexy in terms of his investment strategy, yet Mr. Buffett’s net worth dwarfs all of the hot shot traders on the internet (and most on Wall Street) put together. This is why I recommend starting to accumulate small amounts of mutual funds or ETFs at a young age and continue to invest in them for years and years. Did you know that if you invest just $500 per month in an average returning mutual fund (9% per year) starting at 21 years of age, you would have just over $2 million when you are 60? Of course, you can start with smaller amounts and in later years build up to greater amounts and end up with the same…or better…results.
Since this post is only about getting started with a brokerage account I’m going to stop short of talking about investing, but I will touch on one last point which is about funding your brokerage account. Before you can decide how much and how often you should transfer to your brokerage account make sure you’ve created a monthly budget to determine the amount that’s prudent to invest. Assuming that you have room in your budget to invest you should have an investing line item in your budget. The following are some very key points to remember when starting your investment journey.
- You definitely shouldn’t be investing money you think you’ll need within the next 1-2 years.
- You shouldn’t be taking on debt to fund necessities in order to support investing.
- You also shouldn’t prioritize investing money over paying down debt.
- You shouldn’t get involved with margin investing (basically borrowing money from your broker to invest) to try to maximize returns.
It is much better to start off investing with a strong foundation than to force the issue by being aggressive or trying to juggle debt and investing. That usually pushes people into situations where they do foolish things. Like panic selling when the market has a bad stretch or aggressive trading (which usually involves margin investing) to try to offset rising debt payments. I can speak from personal experience when I say that I have felt most confident in my investments and where they are taking me financially during times when the rest of my financial house has been in order. That shall be all for now. I’m planning a follow on post to this one that talks about making initial investments. So bye for now and here’s to a great financial future!
In The Midst Of A Journey 