ETF Investments Start with Opening a Brokerage House Account
Before you can invest in exchange-traded funds, you’ll need to open an account with a brokerage house. The brokerage will ask lots of questions related to your personal finances, your financial goals, and your investing preferences. Here are some of the inquiries you can expect when you’re in the market to open a brokerage house account:
Retirement or non-retirement account? If you want a retirement account, you need to specify what kind (IRA? Roth IRA? SEP?)
Margin account or cash account? A margin account is somewhat similar to a checking account with overdraw protection. It means that you can borrow from the account or make purchases of securities (such as ETFs, but generally not mutual funds) without actually having any cash to pay for them on the spot.
Unless you have a gambling addiction, go with margin. You never know when you may need a quick and potentially tax-deductible loan. But, before you blithely begin to buy on margin, read the next paragraph for dire warnings!
Margin buying is very dangerous business. The stock market is risky enough. Don’t ever compound that risk by borrowing money to invest. You may wind up losing not only your nest egg but your home. In addition, the brokerage house can usually change the rate of interest you’re paying without notice, and if your investments dip below a certain percentage of your margin loan, the brokerage house can sell your stocks and bonds from right under you. Margin only with great caution.
Beneficiaries and titling (or registration)? Be certain that who you name is who you want to receive your money if you die. Beneficiary designations supersede your will.
Your employment, your wealth, and your risk tolerance? Don’t sweat them! Federal securities regulations simply require brokerage houses to know something about their clients.