Thinking of doing a little stock trading on your own? Before you jump in, remember this: Never invest money in the stock market that you might possibly need in the next 10 years. Avoid the headache -- and a reliance on antacid tablets -- by following this rule of thumb.
If you have at least six months' of expenses socked away, are funding your 401(k) to its maximum and still have money to invest, then dive in. Controlling your stock investments directly can be fun and rewarding.
Opening an online account is simple -- it's like opening a checking account. Pick a brokerage firm, go online and just follow the enrollment instructions. You will be required to fill out some forms and probably send in some paperwork with your signature.
So which account do you choose? Truth is, most online brokerage accounts are a lot alike. It's all about the fees. Look at the commission structure with each account. Compare the fees, and see who has the best deal. Bankrate.com has an online brokerage table you can use for comparison shopping.
Think of fee structures like buying an airline ticket. The cheapest way is online. You can book over the phone, but that may cost a couple of bucks more. Not all online brokers offer a live person on the other end of the phone, so if you think this is something you might want, check into it before you apply.
Insider Tip:
The telephone service for some online brokers can have ridiculous wait times. Before you sign up, call their 800 number a couple of times to see how long you are put on hold. If it is longer than a minute, move on.
What else besides fees?
Some firms offer free dividend reinvestment, which is a great way to let your money compound. Here's how it works. When a particular stock pays a dividend, the firm will reinvest the dividend, including buying fractional shares, without charging a commission.
Insider Tip:
Different brokerage firms have different exchange-traded funds they will let you buy and sell commission-free. To take full advantage of this, you might want to open up more than one account. Why? What may be commission-free at one firm may not be at another.
Remember -- avoid the antacid tablets by doing a little upfront research. Investing can be rewarding when you know the facts and have your financial bases covered.