How to Get Started - At Square One

You've arrived... you've been diligent enough to follow my advice on Personal Finance to the point where you've stashed a good pile of cash, and you're excited to finally have the courage to start investing it.

Here's how to get started on a technical level. 

When I first started out investing, I was terrified and overwhelmed.  The prospect of taking control of my own money was incredibly daunting. I'd like you to have an easier experience than that.

I've written this guide to help make sure the first step in the process of investing--getting an account set up--is as simple as possible. Here you should find all the basic information you need to open an account with any broker of your choosing. I'll give you as much information as possible so you can make a decision which is right for you--and so you can start learning and putting your money to work as soon as possible.

Your first step is to choose a Broker.

Q:  First of all, what is a broker, and what do they do?

A broker is simply a licensed individual, institution, or company which is registered and licensed by the government to hold and sell or buy securities (stocks, bonds, mutual funds, etc). They act as the middleman between you and your investments. If you'll be managing your own investments, you'll open an account with your broker (your “brokerage account”), and the management will be done through an interface, a website. When transactions are completed by you, the broker who maintains your account receives a fee for services, or a commission.

For our purposes, a "broker" is simply the company you go through to buy and sell your investments.

Q: What kind of brokers are out there? I've heard of Discount and Full Service? What is the difference?

Full Service Brokers:  The major factors to consider when deciding whether a full service or a discount broker is right for you is the level of contact you require with them. A full service broker will generally have a physical location you can visit, where a single individual will be assigned to watch your account for you and answer any questions. They might even call you proactively from time to time to assess any changes you need to make with the account, or make investment recommendations. They are someone you can talk with face to face for advice. They can generally be reached easier than a discount broker.  They ensure you receive tax documents and regular statements to view your returns.

The level of service offered by full service brokers comes with some strings attached. If you are completely new to investing, a full service broker may be helpful for a time, but beware: full service brokers often charge much higher fees and commissions to buy investments, even in the range of five to ten times higher than with typical discount brokers. If you have a small trading account, high fees are something that will quickly eat into your investment returns and diminish your success as an investor.

A couple more factors to consider with full service brokers. Keep in mind, most work solely on commission. In an attempt to earn higher fees, some brokers will recommend investments which require higher fees than normal. It has also been my experience that many brokers are unfamiliar with some of the more advanced investment strategies I recommend which will be very profitable for you. In some cases, your broker may try to talk you out of these recommendations--simply because they personally don't understand them.

If ever you go to your broker with an investment idea we’ve given you, and he or she isn’t familiar with the strategy, it’s time for you to shop for another broker. And to be honest, the majority of “brokers” in the market serving average investors are merely “financial planners,” or glorified insurance or annuity salesmen who know close to nothing about the markets.

Discount Brokers:  The term “discount broker” implies that you’ll be saving money on commissions and fees compared to a full service broker. This is generally true. Depending on the broker you use, commissions on an investment generally range anywhere from $1 to $15 to buy or sell a stock or bond. That’s a steal by any measure!

With discount brokers, you’re doing all of the work yourself, with no human contact, and that’s why it’s cheap. But you can still easily access any type of information through a discount broker which you would through a full service broker. The difference is, there is no “principal-agent” problem, or perverse broker incentive involved. It is still possible to call up a discount broker’s calls center and have someone help you execute a trade, but doing so will likely result in the same exorbitant fees charged by full service brokers.

If you’re here on the site, it’s because you’re smart, you want to learn, and you’re interested in taking control of your financial future. With a little legwork, and couple of good books (see our Recommended Reading List), you can quickly come up to speed enough to manage things through a discount broker. But, it’s a decision you should make yourself.

Q: How Should I Go About Choosing a Broker?

The Oracle of Omaha, legendary investor Warren Buffet, said, “Price is what you pay. Value is what you get.” I would add, “and you get what you pay for.” The same is true for brokerage firms.

Not all firms are created equal, but most provide the same basic service. They allow you to buy and sell investments. What varies is the level of service provided to you when contact is necessary. The basic difference is commission price, as mentioned above, and whether or not the firm charges you to speak with a live person or to execute a trade on your behalf when you call them up.

My advice is to peruse the websites and get familiar with the brokerage firms listed below. I don’t endorse or receive copensation from any one of these firms, so please explore without my bias. It’s possible to call up each of the broker if you’d like to have their customer service answer any questions you have.

While I don’t specifically endorse any of the below brokers, I recommend using the below list as a starting point for your search for the right broker. I’ve included the average commission charged for standard equities (stock) trades for your reference. Please note, the below may have changed since I wrote this, so you will want to check the broker's website for the most up-to-date information.

Q: What is the Process For Opening An Account?

Once you’ve decided which firm to go with, opening an account is easy. Just go to the firm’s website, and you click on the “Open a New Account” button.

Each broker requires you to provide personal information such as name, address, phone number, email address, and social security number, just as any other financial institution would. After all, Uncle Sam will be watching your investment returns and want his cut every April.

While going through the registration process, I would advise you to be vigilant about checking any boxes that mention anything about receiving “promotional material” from sponsors. Once, after opening an account with one of the discount brokers, my physical mailbox was barraged for three weeks with endless offers from other investment firms and advisories advertising precious metal investments, penny stock alerts, and everything in between. These are very shady advertising tactics.

Account Type: As one of the final steps in the registration process, the broker asks you to designate what your investment goals or risk tolerance are with the account. There are generally four:

  1. Conservations of Capital
  2. Income
  3. Growth
  4. Speculation
If you’re going to be strictly buying “plain vanilla” investments like bonds, stocks, and mutual funds, you’ll want to select at least the first three. The fourth option can be selected if you as an investor plan on eventually using more advanced strategies using stock options to employ more profitable and conservative income strategies. They call this fourth option “speculative” because stock options, while originally being invested to decrease risk, are now being used by most investors to speculate and profit on short-term price movements. This risk tolerance can also be changed at any time after the account is set up. You can learn more about "speculation" in my Investments section on Short-Term Investments.

The broker will ask you to designate whether your account is “cash” or “margin” or both. In most cases, “cash” is sufficient. Using margin is akin "borrowing" money, and you're charged interest for it.

Account Tax Status:  Depending on the tax status you choose for the account, there may be rules in place prohibiting more advanced trading strategies. For example, more speculative investments may be disallowed for a traditional or Roth IRA account. Since we’re not tax advisors, we would recommend you speak with a professional regarding the tax implications of your brokerage account. If you already have an IRA or other retirement account, it may make the most sense to open the account as standard.

Funding the Account:  If you’ve ever paid a bill online before through your checking account, the process for actually funding your brokerage account will be similar. You simply provide routing and account numbers for the account the funds will be withdrawn from, and the broker will handle the wire transfer themselves, usually in 3 to 5 business days.

It is also possible to simply mail them a cashier’s check. Some brokers require a minimum amount to fund the account, such as $500 or $2000. This is noted above in the chart with the broker commissions.

Funding for retirement accounts can be tricky, especially if you are rolling over a previous employer 401K or other type of retirement account into your new brokerage account. There are tax implications for not timely initiating the transfer of funds, especially if you get cut a check from your previous retirement account trustee to have rolled over into your new one. It is best to consult with a tax professional in this regard.

Q:  How Do I Complete My First Trade--The Fun Part?

The boring part is over… and now the fun begins. It can actually by quite daunting to make your first trade (and it still is for me, mistakes can be made), because you don’t want to do the wrong thing. But once you understand what you are doing, it’s easy.

To illustrate, I’ll share with you a sample trade I made last January and recently closed in July. I’ll illustrate how this trader were to be done as if it were live. To complete this trade, log into your broker’s website. Once you are in, there should be a tab or section titled “Trade.” Alternatively, some brokers have the trading platform/order entry screen attached as a “widget” or separate window permanently attached to the bottom of the website’s screen, as indicated below:

In this example, we’re buying Cisco Systems, Inc. Each stock available for purchase has a “ticker symbol” which designates the company. Cisco’s symbol is CSCO. I enter this in the box next to Quote, then click on the Quote button. This brings up the stock’s price and other details. Since I’m buying CSCO, I select “Buy”, and enter the number of shares. I enter the price I’m willing to pay, which is usually the Ask (higher number) listed on the stock’s “spread” (the prices that the broker is willing to sell or buy the stock to or from you).

The trading platform usually has a Preview Order button, where it will summarize if you are buying/selling, how many shares you are committed, to buy, and at what price, calculating a total cost. There will be a button to the effect of “Place Order.” Click this button to complete the trade.

After the order has been placed, you should see a confirmation page populating on your screen with the same summary details as appearing in the trading platform or widget.

Congratulations on your first trade! You should now be able to view the stock position at any time on your broker's website.


Congratulations on getting your account set up. This is really the first step in taking control of your own investments and becoming a wise, experienced investor. I'm sure your question is: What do I do next? Head on over to Sentient U, the site's Education Center, and peruse all the articles we have, which will help give you the training you need to become a savvy and successful investor.

A great place to start learning is here:  Learning to Think Like An Investor