Saving and investing is one of the ways to build real wealth. Opening a brokerage account is one of the first steps.

There are  many possible brokerage services. This series of how to articles is not intended as an endorsement of any one Broker, but rather an instruction for those who want to learn how to get started with investing. As fee-only financial advisors, we receive no compensation other than what we receive from our managed clients. This is intended as free advice for those who don’t meet our minimums or prefer to manage their investments themselves.

A broker performs, among others, the following important services:

1. They hold your assets (e.g. shares of stock) safe. This is called custody. They are the custodian. Large reputable custodians are less likely to embezzle your assets.
2. They value your assets. Assets are valued based on what someone else in the market is willing to pay for them. They can tell you at any minute how your investments are doing.
3. They help you buy or sell your assets. A good broker is trying to get the best trading execution when you want to buy or sell.
4. They help you streamline your financial transactions. They try to make putting money in or taking money out of your account easy. They can provide many of the same services that a bank can perform. They can even add a checking account which is linked to your brokerage account.

It is always good to know how anyone in the financial services industry makes their money. Your interests are not always aligned with their interests. Here are some of the ways that a broker makes money off of their brokerage accounts:

1. Under normal circumstances, when the Federal Reserve isn’t holding interest rates artificially low, they make a fair amount off of money market accounts.
2. They can also charge for stock trades and even more for mutual fund trades. Stock and ETF trades currently cost about $9 at one of the brokers and mutual fund trades cost between $25 and $50.
3. They can also get a piece of the action for some mutual funds. Every mutual fund has an expense ratio. Some funds have what are called 12b-1 advertising fees. When these 12b-1 fees do not exceed 0.25% they can be called “no load.” Brokerage houses can negotiate to receive part of the expense ratio in order to allow investors to purchase the fund without paying a transaction fee.
4. Some brokerage houses run their own mutual funds or exchange traded funds and collect the entire expense ratio.

Here are options that novice investors can look for in a custodian:

1. You can pick a mutual fund company to avoid the transaction fees of mutual fund trades. If you do make sure it is a low cost mutual fund company. Mutual fund purchases at the mutual fund company should cost nothing in transaction costs. You can get started with as little as $50 a month in dollar cost averaging purchases.
2. Or you can pick a broker who has inexpensive trades (under $10 per trade) and no annual or monthly fees for having an account.

Here is a list of custodians to consider:

1. Vanguard
2. Charles Schwab
3. TD Ameritrade
4. Fidelity
5. E*Trade
6. Scottrade

Here are the types of accounts which you might want to open:

1. Taxable investment account: Many couples mistakenly believe that wealth is built only in qualified retirement accounts. But the government limits how much money you can put into retirement accounts. The excess has to go somewhere. You don’t want to spend it, and accumulating cash won’t grow your wealth. Saving and investing is the way to build significant wealth. This is often the most important and overlooked account.
2. Traditional IRA account: You may need an account for you and a separate one for your spouse. A traditional IRA account can accept money rolled over from 401(k), 403(b) or other traditional retirement accounts. Money put into a traditional IRA account is usually tax deductible, but when the money is taken out it is taxable.
3. Roth IRA Account: You may need an account for you and a separate one for your spouse. Unlike a traditional IRA, a Roth account does not get you a tax deduction, but there is no tax due when you take money out in retirement. Additionally, you can withdraw the amount you put in tax free after five years or more. There are limits on how much you can put into your Roth account. Put in the maximum each year.
4. Banking Account: You can often add a banking account or banking services onto a taxable investment account. This will allow you checking, credit card and other services. At a minimum you can link your own bank account to your taxable investment account in order to electronically transfer cash between the two accounts overnight.

Opening an account is the first step in getting started in investing.