There comes a point in our lives when we have to become mature, responsible adults and think about our future. Money is a major concern for all of us and to this day we have yet to see a money tree or even a sprout (despite the many scientific attempts)! The fact is, there is never enough money so we all need to figure out how to keep the little we have and also how to increase what we have so there is enough for a rainy day or retirement.

Along the walk of financial maturity, you will come across an avenue called investing and so begins the long journey to securing your financial future. There are many options in the land of investing. One such option being investing in the stock market. Let’s explore the stock market option further and the steps to get you well on your way to riding the investment wave.

Before you can begin investing, you must first open a brokerage account. A brokerage account will allow you to purchase stocks, bonds, mutual funds and other investments. This is the first step towards building your portfolio.

As a new investor, selecting the perfect broker can be difficult. Choosing a broker is like choosing a stock — it requires much thought. Before choosing a broker, you should know what a broker is and does. Investors have a choice of what type of broker they wish to use, depending on their varying needs. There are two main types of brokers: discount and traditional (also known as full-service).

Traditional brokers

Should you chose to open an account with a traditional brokerage firm, you will work closely with an advisor. He or she will offer you investment advice, provide recommendations of specific stocks for your consideration, prepare reports on your portfolio, provide regular updates on your investments and is generally available to you and your needs.

With just a phone call or an e-mail you can instruct your advisor to buy or sell stocks, bonds, mutual funds or other investments on your behalf. Traditional brokers provide a wide array of services to you and in exchange for this personalised service, you will be charged a fee or “commission”.

There is another type of traditional broker that is most often called a money manager (the name may vary based on the company). A money manager handles significant portfolios. The entire portfolio is the responsibility of the money manager, who makes all the investments and management decisions. In exchange for this service, a percentage of the assets managed is paid to the money manager.

Discount brokers

Discount brokers, on the other hand, are companies that are garnered more towards the do-it-yourself investor. This type of broker does not offer investment advice or suggest what you should invest in. Instead, they simply execute your orders. This leaves the investor to make his/her own financial decisions.

With a discount broker, you will not be assigned an advisor, when you go in or call in your order you will speak with the first available advisor. By sacrificing the tailor-made contact with your own personal advisor, you will be charged a significantly lower commission. Most brokers offer both services to their customers, allowing them to choose between traditional or discount arrangements based on their needs and personality.

So now you know your options. Let’s get started!

When opening a new account, the broker will inform you of the minimum investment amount they require, which will vary. Most companies also offer the option of either having you fill out the application form online, print them and bring them in along with the other documents required or schedule an appointment with an advisor who will walk you through the application process at your convenience.

Be prepared. You can call the broker and find out all the requirements beforehand, gather all you need and the rest will be a breeze! The process is easy and can be done fairly quickly at almost all financial institutions.

About commissions

Apart from being the most significant difference between traditional and discount brokers, the cost of commissions per transaction can vary between brokerage firms. One firm may charge $5 per transaction for a traditional account and another may charge $10 for the same type of transaction. Therefore, it is important to shop around and compare different firms before opening an account.

Withdrawals

Make sure you understand the policies involved in pulling funds from your account with your prospective broker. Yes it’s your money, but sometimes it’s not so easy to get it out of your account. Some brokers charge fees for withdrawals or will not allow your balance to go below the minimum.

Other services and perks

All brokers differ in the extra services they offer to clients. The general functions are the same but the difference may be in the perks. Some brokers offer online services such as real time log in via the Internet, through which clients may print out their portfolio and view the balance on their account. Another broker may not offer online services but may provide excellent research tools.

Once you have opened an account, you can start investing your money.

Eventually, you will have to make a decision and choose a broker. In doing so, please remember it is important to strike a balance between being an investor and a client — good customer service is essential! Choosing the right broker demands some time and effort on your part, but the bottom line is you stand a better chance at making money as an investor with the right partner by your side.

Jodi-Kaye Allen is an advisor associate at Stocks & Securities Ltd.

CAPTION (Saudi 1, Greece exchange, Saudi 2)

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