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Having the right investment accounts can help you reach your financial goals. Learn a few reasons you may want to open a new one this year. [[{“value”:”
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People usually don’t make changes to their investment accounts too often. Once you’re investing regularly, it makes sense to stick to what’s working. And if you’re using any of the top stock brokers, you might not need to make any changes.
But there are some situations where making a change could save you money and benefit you as an investor. If any of the following are true, you should consider opening a new investment account this year.
1. You haven’t opened a retirement account yet
We all need to save for retirement. Social Security benefits normally only replace about 40% of pre-retirement earnings. They can help, but they’re not enough to comfortably live on for most of us.
The best way to save for retirement is with tax-advantaged retirement accounts. If you only save through a regular brokerage account, you won’t get any tax benefits. Most brokers have two popular types of individual retirement accounts (IRAs) that anyone can open:
Traditional IRAs let you deduct contributions from your taxable income in the year you make them. Withdrawals in retirement are considered taxable income.Roth IRAs let you make tax-free withdrawals in retirement. Contributions can’t be deducted from taxable income.
You’re allowed to make up to $7,000 in IRA contributions in 2024 (or $8,000 if you’re 50 or older). If you haven’t set up an IRA already, do so immediately so you can start saving on taxes. If you already have a broker you like, you can probably open an IRA there.
2. You’re paying too much in fees
There are plenty of safe, affordable ways to invest your money. All the major online brokers now offer commission-free trading. If your broker still charges commissions for buying stocks or investment funds, then it’s time to switch brokers.
You should also make a change if you’re currently paying a management fee to a financial advisor. Most investors don’t need a financial advisor, and the fees can cost a lot more than people realize. Instead of paying one, open a brokerage account, and invest in low-cost index funds.
Ramit Sethi, author of I Will Teach You to Be Rich, recently shared an example of how much fees can cost you. Let’s say you start by investing $50,000 at 30 years old, and then continue investing $1,000 per month. You get a 7% annual return over 35 years of investing. If you put your money in index funds with fees of 0.2%, you end up with $2.15 million. Here’s how that changes if you’re paying a higher amount to a financial advisor:
If you pay a 1% fee: You end up with $1.76 million — fees cost you an additional $390,000.If you pay a 2% fee: You end up with $1.39 million — fees cost you an additional $760,000.
3. You want more investment options
Not all stock brokers have the same types of investment products. They all let you buy and sell stocks, as you’d expect. And most of them offer exchange-traded funds (ETFs). Outside of that, options vary from broker to broker.
Some brokers don’t have bonds, or mutual funds. There are also brokers that don’t offer options trading or futures. And there are only a small number that let you buy cryptocurrencies.
You don’t need an account with a broker that offers everything. But if you’re disappointed in your broker’s mutual fund options, or you want to invest in something that your broker doesn’t offer, then you should probably get a new investment account.
4. You don’t like your broker’s trading platform
It’s important that your broker’s trading platform offers all the features you need. Some have useful charts and research tools — if you analyze stocks, then you’re probably going to want a broker with these features. If you like being able to invest using your smartphone, then you need a broker with a quality investment app.
You should also be comfortable using your broker’s platform. If you’re not, you may not invest as often. If you aren’t satisfied with your current broker’s features, or if you don’t like its trading platform, look for one that’s a better fit.
There are lots of great stock brokers, and it doesn’t take long to set up an account with them. If you’re ready to open a new investment account, check out The Ascent’s guide on how to choose the right brokerage firm.
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