Glass jar for money on background. concept: investment accounts
By: rkapur
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Best Investment Accounts If You Have A Low Budget

You probably know that investing in stocks can help you to grow your wealth. However, many people are hesitant to invest in the equity market. They think that specialized knowledge is required to become an investor. They’re also not very sure about how to begin. 

You should know that you don’t need to be a financial expert to buy stocks. Anybody can be a successful investor

But how can you make a start? 

The first thing that you need to do is to open an investment account. In this post, we’ll tell you all about the best investment accounts for low budgets, and we’ll also explain the factors you should consider before deciding on one.

But let’s start by dispelling the myth that you need boatloads of money to be a stock investor

Short Investment Glossary
Brokerage account: it is just another way of calling an investment account used to buy and sell stocks. You open it at a brokerage.

Brokerage, broker: a broker is a person that help you buy or sell stocks for a fee. A brokerage is a firm that arranges these transactions.

Equity market: it’s just another way of calling the stock market (which can also be called share market), which is where you can buy and sell stocks.

Option: it’s a contract that gives you the right, but not the obligation, to buy or sell a stock or some other financial security. 

Securities: in straightforward terms, a security is an investment that will bring you profit.

Invest on a small budget

How much do you think you need to get into the stock market? 

A million dollars? One hundred thousand? $10,000? 

The fact is that you don’t need much money at all. 

Robo-advisers, which are automated wealth advisory platforms, have made stock investments accessible to practically everybody. 

Leading firms like Betterment and Wealthfront provide investment services without stipulating a minimum account balance. In fact, the five brokerages we have listed in this post don’t stipulate a minimum amount that you have to invest.

Investors can make a start with as little or as much money as they want.

An excellent way to collect money to invest in the stock market is to use the 50/30/20 budget rule. 

50-30-20 budgeting rule, infographic. concept: investment accounts. camino financial

How can the 50/30/20 rule help you to build your wealth? According to this system, you should:

  • Make sure you spend only 50% of your after-tax income on essentials. Your rent, groceries, car payments, and other expenses for day-to-day living, fall into this category. 
  • Limit discretionary spending to 30% of your total budget. These are your “wants.” They include eating out, holidays, and the money you spend on your hobbies.
  • Save at least 20% of your after-tax income.

If you follow this system, it can help you to accumulate a significant sum over a period. Remember to “pay yourself first.” This implies setting aside money towards your savings before you pay your bills or spend on other things.

How to Choose an Investment Account

Many discount brokers want you as their client. How can you decide which one you should select? 

When you are choosing between investment accounts, the factors you should consider are:

  • Minimum investment amount

Check whether the broker requires you to make a deposit. Some brokerage accounts stipulate minimums that could range from $500 to $1,000. A full-service brokerage account may require even more. 

  • Commission payable

This is the amount you will have to pay your broker to execute a transaction on your behalf. Discount brokers and robo-advisers have the lowest commission rates. 

  • Types of securities traded

Find out if the brokerage offers the securities that you’d like to buy. 

If you want to minimize your level of risk, you could consider investing in mutual funds or exchange-traded funds (ETFs). These pool money from investors and buy stocks of various companies. 

By deploying a relatively small amount in a mutual fund or an ETF, you can invest in dozens of companies. 

  • Availability of investment advice

Full-service brokers offer personalized investment advice. But they can be expensive. 

  • Fractional Shares

Some investment accounts allow you to buy fractional shares. 

What’s that? 

For example, Amazon stock is currently trading at over $2,100. You may want to invest in the world’s largest e-commerce company, but you may want to buy only, say, half a share. Some investment accounts allow you to do that.

  • Options pricing

Options trading is considered to be speculative. So, while you can make big gains, it’s also easy to lose money. If you’re willing to take the risk, options offer an excellent opportunity to boost your investment returns. 

Mature financial agent showing new investment to young couple. Happy financial advisor discussing with a couple their mortgage loan. Happy couple consulting their bank agent about savings plan. concept: investment accounts

Investment Accounts and Their Fees

When you are comparing investment accounts, your primary consideration would probably be the amount payable as fees to the broker. While that’s the correct approach, you should be careful about hidden fees. 

#CaminoTip Read the fine print and familiarize yourself with the charges that you may have to pay.

Here’s a quick guide on what you should look out for:

  • Brokerage fee

In addition to the amount payable on each trade, which is usually referred to as trade commission, you could be charged an annual fee as well. 

There may also be a subscription amount to be paid for data and to access the trading platform. If you don’t execute any trades for a specific period, you could be charged an “inactivity fee.”

  • Fees for mutual funds

Mutual funds can be an expensive form of investment. There may be a “sales load,” which is a commission payable to the salesperson. Additionally, mutual funds levy an expense ratio. This is an annual fee for managing the investment that you have made.

  • Management fee

If you are using the services of a financial adviser or a robo-adviser, you may have to pay a specific percentage of the assets under management as a yearly fee. This could be as high as 2% of the amount that you have invested.

Now let’s take a look at some of the best investment accounts in the market:

The Best Low-Cost Investment Accounts

Now that you’ve collected an initial sum to invest and know how to choose a brokerage account, it’s time for the next step: choosing from the many available investment accounts.

Here is a listing of some of the best low-cost investment accounts that you can open.

1. Charles Schwab

Charles Schwab logo. concept: investment accounts

Charles Schwab is a pioneer in the field and has been around since 1971. 

Investors get other benefits, as well. Phone support is available 24/7, and the brokerage has over 300 branches.

Pricing for trades: $0

Options trades: $0.65 per contract

Minimum amount to open a brokerage account: $0

Availability of investment advice: Free

Fractional shares: They don’t offer fractional shares yet, but there are plans to roll out this feature sometime in 2020

Types of securities traded: Stocks, bonds, mutual funds, ETFs, options, futures.

2. Merrill Edge

Merrill Edge logo. concept: investment accounts

Merrill Edge is the electronic trading platform provided by BofA Securities, which is, in turn, a division of Bank of America.

If you have an account with Bank of America, opening an investment account with Merrill Edge could be a good idea. Doing this could qualify you for Merrill’s Preferred Rewards program. This entitles you to higher interest rates on savings accounts, reduced rates on auto loans, and several other benefits.

Pricing for trades: Stock and ETF trading is free

Options trades: $0.65 per contract

Minimum amount to open a brokerage account: $0

Availability of investment advice: Free

Fractional shares: No

Types of securities traded: Stocks, bonds, mutual funds, ETFs, options

3. Fidelity Investments

Fidelity Investments logo. concept: investment accounts

Fidelity has earned a reputation for itself with its high-performance mutual funds. It’s also an excellent choice for investors on a budget.

Fidelity offers investors an additional benefit. All cash in new accounts is transferred to the Fidelity Government Money Market Fund. In the last year, this fund has earned a return of 1.77%.

Pricing for trades: $0

Options trades: $0.65 per contract

Minimum amount to open a brokerage account: $0

Availability of investment advice: Free

Fractional shares: Yes

Types of securities traded: Stocks, bonds, mutual funds, ETFs, options

4. Robinhood

robinhood logo. concept: investment accounts

Robinhood gets its name from the medieval English outlaw who robbed the rich to give to the poor. 

It is an excellent choice for saving on costs. It’s also a good option if you want to invest in cryptocurrencies.

Pricing for trades: $0

Options trades: $0

Minimum amount to open a brokerage account: $0

Availability of investment advice: You get limited free advice. Paying $5 per month gives you access to several types of research reports and data.

Fractional shares: Yes

Types of securities traded: Stocks, ETFs, options, cryptocurrency, American Depositary Receipts for 250 companies

5. Firstrade Securities

Firstrade Securities logo. concept: investment accounts

Founded in 1985, Firstrade offers its clients online and mobile trading.

Firstrade was the first brokerage to offer commission-free trading. It also provides complimentary access to a wide range of free research reports. These include Morningstar, Benzinga, Zacks, and Briefing.com.

Pricing for trades: $0

Options trades: $0

Minimum amount to open a brokerage account: $0

Availability of investment advice: Free

Fractional shares: No

Types of securities traded: Stocks, bonds, mutual funds, ETFs, options

Portrait Of Female Owner Of Gift Store With Digital Tablet. concept: investment accounts

Are You Ready to Invest?

As you can see, there’s intense competition between brokerages. So individuals who open investment accounts get access to free trades, zero minimums, and research reports that they needn’t pay for. 

With some brokerages even offering fractional shares, it’s possible to invest in the stock market with very little money. 

If you’re still undecided about investing in equities, it could be a good idea to start small. Make a beginning with a few hundred dollars. As time goes by, you’ll learn more about the markets and gain confidence. 

Over the long term, stocks can provide high returns and help you build a sizable nest egg. 

Want to learn more about stock investments? We invite you to keep reading: 

Businessmen investing in the stock market

How To Invest In The Stock Market

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