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Chapter 14. Learning the Fundamentals of... > Choosing a Brokerage Account

Choosing a Brokerage Account

If you are going to invest in stocks, you will need a brokerage account (but see the following section on dividend reinvestment plans). These accounts offer the ability to buy and sell stocks, bonds, and mutual funds and, in most cases, a linked money market account with check-writing privileges. Other services offered differ depending on the brokerage company and the kind of account. For most accounts, the only cost to you is the commission you pay with each purchase or sale. Some accounts might charge a small yearly fee as well. There are three main types of brokerage accounts:

  • A full-service brokerage account provides a personal broker, a trained individual who will—at least in theory—answer your questions, keep an eye on your investments, give investment advice, and take care of problems that might arise. As you might expect, commissions are considerably higher at a full-service broker.

  • A wrap-fee account provides a set of account services for a fixed fee, usually determined as an annual percentage of the account balance. You do not pay trading commissions, no matter how many trades you make.

  • A discount brokerage account provides buying and selling services only. Your investment decisions are completely up to you. Commissions are significantly less than at a full-service broker.


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