Should you open a brokerage account?
By Jay MacDonald • Bankrate.com

Fed up with letting others manage your investments? Bored by the solid but unspectacular returns of index mutual funds? If so, you may consider charting your own financial course by opening a brokerage account.

These accounts allow you to use a broker to buy and sell stocks, bonds, mutual funds and other investments. In exchange for this service, your broker charges a commission that ranges anywhere from $5 to $100 or more per trade.

The broker will likely also require an investment minimum to handle your business.

Brokerage accounts provide today's would-be financial captains with an ocean of available investment options. However, experts say you'll need navigational skills, guidance and discipline to keep from running your portfolio aground.

"It's intimidating," says Eric Tyson, author of "Investing for Dummies."

"The beauty of your 401(k) plan at work is (that) your benefits department has done the hard part for you, which is narrowing the universe of options. It is intimidating to go out on your own because there are literally tens of thousands of options.

"It's frankly overwhelming for most people," he says.

If such warnings don't scare you away from DIY investing, you'll need to know the basics of opening a brokerage account.

Brokerage account basics
Brokers fall into two broad categories: traditional (or full-service) and discount.

Typically traditional brokers have a physical office that gives you an opportunity to meet with them and establish a personal relationship. Brokers help you devise an investment strategy, manage your portfolio, offer advice on investments and the timing of trades, and generally encourage you to stay the course in turbulent times.

Brokers may also afford you the opportunity to invest in hedge funds and private equity, and can provide a wide range of other services, including retirement planning, insurance, tax preparation and banking.

The traditional full-service broker

Pros Cons • Offer advice on investment strategy and portfolio management. • Provide access to hedge funds, private equity. • Help with other services (e.g., retirement planning, tax preparation). • Higher commissions and minimum asset requirements. • Compensation model may create conflict of interest.

Although full-service brokerage commissions tend to be higher and their minimum asset requirements larger, a broker's investing experience and resources may more than recoup such costs. A few well-known full-service brokerages include Merrill Lynch, Smith Barney and A.G. Edwards.