3 signs that you are ready to open a brokerage account
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Brokerage accounts have become more accessible and affordable than ever. You can open an account with an online discount broker without having to make a certain minimum deposit in most cases. Many brokers also don’t offer any commissions, so it makes sense to trade with small amounts of money. And fractional stocks allow people with little money to invest in assets like stocks and ETFs.
But before you open a brokerage account to start investing, you’ll always want to make sure you’ve completed some key financial tasks on your to-do list. Here are three signs that you are ready and ready to open your first brokerage account.
1. You have an emergency fund
When investing money, you don’t want to have to sell your investments at an inconvenient time. This is because the market naturally goes through cycles where crashes occur and are then followed by recoveries.
If you invest for a long time – giving you about five years before you have to sell – you can significantly reduce the risk of losses that could arise if you have to sell your investment at the wrong time.
Therefore, you’ll want to make sure you have money set aside for emergencies before you start putting your investments in the market. Without emergency savings, if you find yourself facing an unforeseen expense. This can leave you with the unwanted choice between selling investments and racking up losses if the timing isn’t right, or going into debt to meet emergency costs. If you have an emergency fund, however, you won’t need to sell your investments out of necessity. You can do this when the time is right.
2. You won your 401 (k) match
For most people, it makes sense to put some spare cash into a 401 (k) in the workplace and earn their business’s game before investing in any other type of brokerage account.
Employers frequently offer 401 (k) to workers, and if yours does, you can simply sign up to invest in your 401 (k) workplace. Money can be withdrawn from your paycheck directly and automatically. And if your employer matches some of your contributions, they’ll give you extra free money when you invest.
You don’t want to pass up free business money, so be sure to maximize your employer’s matching funds before opening a brokerage account and investing money elsewhere.
3. You have an investment plan
Finally, it makes sense to open a brokerage account only after you have established a solid plan of the assets that you will be purchasing there. Without an investment plan focused on maximizing returns and reducing risk, you might find yourself facing too much risk of loss.
If you’ve followed these three steps, you are probably ready to open a brokerage account and start putting your money to work for you. The sooner you start, the faster you can work on building wealth, so it’s best to check these off your list as soon as possible.
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