With any research I have done on google, people will explain investing with the assumption that people have a basic understanding on the different types of financial systems. *I don’t*. With a brokerage account, do I just put the money in and let it sit to accrue interest, or do I need to do anything else?
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No, you need to take action once you add money to a brokerage account… once there, you need to choose what investments to buy. If you want to buy individual stocks you can, or if you’re a novice, you could just buy some board index fund like Vanguard S&P 500 Index Fund. Depending on your account size and level of knowledge, you might eventually be able to add options or futures trading to your account.
A brokerage account is an account held by a “stock broker” or trading house. A bank account is an account held by a bank. Banks can also be brokerages (which can also be called an investment bank).
There are different brokerage accounts (margin, equities, options, commodities, futures etc) like there are different bank accounts (checking, saving, money market etc). And those different accounts allow you to do different things at the institution holding your money.
Given your question, you really shouldn’t have a brokerage account unless it is being managed by a qualified team (like in a company sponsored 401K). If you wish to buy on you own you may want to look into things that are managed for you like a mutual fund. But you should not have your money just stilling in a brokerage account. It will lose value given inflation. You are better off in some investment vehicle like a money market or CD.
If you have enough money or income you should speak with a financial advisor, if you don’t really qualify for a financial advisor, speak with the investment representative for your bank, they can help you start to build your wealth.
You need to do other stuff with it, although it can make a small amount of interest. Imagine you’re at a store buying something with cash. You pull out your wallet, take out $100 and put it on the counter. You haven’t bought anything yet, but the money has left your possession and is in the stores. You can get it back of course, but the store has the money. Once you buy something, the store will put your change on the counter for you to pick up. Same thing if you bring something to sell, money gets put on the counter. The store has the physical money, and you haven’t physically recieved anything yet
That’s kinda what a brokerage account is like. The money has left your bank, and is with the investment company, but you haven’t done anything yet. Its just a pile of cash that’s between spots. I have a vanguard account and if I buy an investment, it goes my checking ->vanguard brokerage-> investment. When I sell it goes investment->brokerage->checking. Or it can go to another investment so it can go investment->brokerage->other investment.
A brokerage account is NOT a bank account. It is an account with a broker (also called a stockbroker). In days of olde, you had a single literal broker who you would call (or who would call you) and you’d direct them (or they’d make suggestions to you) about what investments to buy or sell. These were usually stocks (hence, a “stockbroker”) but could include all sorts of investments.
These days, you’re far less likely to have an individual broker at the other end of the phone. Instead, you have an online account and a brokerage firm that more or less manages your account through various algorithms. If you’re wealthy enough, or you intentionally seek one out, you may get an actual person who is “your” broker. But even then, they are likely following some program created by the firm they work for more than they are giving you individual attention.
What actually happens is you open a brokerage account and fill out a form that asks you questions about your investment timeline (you need this money in 3 years or 30 years?), risk tolerance (are you prepared to lose a lot if it means you may gain a lot?), types of investments you’re comfortable with (stocks, bonds, mutual funds, foreign investments, options/puts/calls, etc.), etc. Depending how you answer those questions and the amount of money you have to invest, you’ll get a recommendation regarding what things to invest in, which you can accept or tweak or ignore completely.
And then the brokerage firm invests your money as you direct, and you’ll be able to see what’s happening with those investments whenever you like by checking your account online. And if you start making lots of money, or if you borrow money to invest (called margin investing – DO NOT DO THIS AS A NOVICE!!), you’ll get actual phone calls from someone at the brokerage firm who want to make sure you’ll stick with them rather than go to another broker. They may also try to direct you to other investments, some of which may be good for you, but ALL of which will be good for them (because of commissions or fees).
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