In this investing series, I’m going to be transparent and use our own money as an example. We’re not giving financial advice. We’re just guinea pigs so you can see what we’re doing, start to finish.
If I sound like a total noob, it’s because I am. It seems that FIRE bloggers either get it and their blog posts are mostly ticker symbols or they’re investing in real estate…and we’re neither. 🙂
Brokerage account! It’s time to find out where we can invest our money. I had a LOT of questions about this process, as you might have guessed from the first post in this investing series…
Where can we open an online brokerage account?
It looks like all the names one would recognize have brokerage account options: Charles Schwab, Fidelity, and Vanguard.
However, there are some names that are new to me: Ally Invest (formerly TradeKing), Merrill Edge, and TD Ameritrade.
After this initial review, we’re leaning toward Vanguard because of simplicity. My retirement accounts are with Vanguard and Garrett’s will be once he leaves his job. However, it would be a mistake to consider only one company without reviewing all the options (and fees, too!).
How do we know which brokerage account is right for us?
If I were to reframe this question, it would be this…Where can we invest the most for the lowest fees?
Since we are not traders and have no plans to buy individual stocks or ETFs, so we are less concerned with trade fees. Our plan is to buy one index fund that pays dividends, not an ETF since we might have to pay a commission (unless there are commission-free ETFs).
We want to put money into the account, have it pay dividends, and then reinvest the dividends automatically until we start taking the dividends (i.e. we no longer have active income).
Lazy. We want a lazy account for a lazy strategy that generates lazy passive income.
Overall, it looks like all of the online brokerage account options would be OK. Everyone has their own flavor of various kinds of investments to consider, so it could mean that we close one account and open another in the future. Just because we choose one strategy today doesn’t mean we’re stuck with it, so having lots of options might be important in the future.
Can I connect a brokerage account to Mint.com?
Intuit knows everything about us, so they might as well know about our brokerage account. Having everything connected and online will make it easy to manage our cash flow when we’re FIRE’d.
Since we use Ally for our online savings account and Vanguard for our retirement accounts, we know these companies have relationships that allow for the free flow of information. We’ll assume the same applies when we go to link our brokerage account, too.
Over the years, Mint has made significant strides in its ability to connect with other companies. I’m going to assume that all of the larger companies can connect, but it’s on my list of questions when we decide which brokerage account companies make it on the short list.
Is there anything like the FDIC insuring our brokerage account?
Our money is on deposit with two companies that are insured by the Federal Deposit Insurance Corporation (FDIC), so no worries about our checking and savings accounts.
But what about our brokerage account?
Apparently, there is an insurance program for this: Securities Investor Protection Corporation (SIPC). The list of SIPC members makes it easy to sort out which brokerage account companies we should work with and which aren’t.
A quick check of the list showed the Ally, Charles Schwab, and Vanguard are all on the list of members, so their brokerage accounts offer insurance.
How quickly can we liquidate our investments if we needed the money?
Is opening a brokerage account like opening a checking account? Is it is easy to sell off our assets and close the account?
According to the Securities & Exchange Commission (SEC), we can close our account at any time, so long as we adhere to the terms and conditions.
Vanguard says that we’d have to call to close our account, but there aren’t any fees for doing so. I imagine the fees will be incurred when we sell our investments, depending on what these are and when we do it. We might even have to pay taxes. (Of course, because that’s life.)
What’s the minimum we can invest to open a brokerage account?
We need to have a strategy first, so we’ll start small and invest only the minimum we need in order to open our brokerage account.
Ally Invest has no minimum for open a self-directed account, which is awesome. I couldn’t find an annual fee, but that doesn’t mean they don’t have one — I just couldn’t locate the information online.
It looks like TD Ameritrade doesn’t have annual or inactivity fees, which is awesome. Plus, no minimum to open an account!
Vanguard charges $20 a year for brokerage accounts with less than $10,000.
Overall, it looks like we could start a brokerage account and buy only one share of an investment, except for Vanguard where we’d have to pay $20 if we had less than $10k. That’s awesome! Not a bad way to compare two companies before we decide to go all in with one or another.
What’s the maximum we can invest in a brokerage account?
It looks like there is no upper limit, but…
“The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash.” – SIPC website
However, the insurance isn’t based on the person — it looks like each of us could have a brokerage account in addition to a joint brokerage account and be insured for a total of $1.5 million.
Since we don’t have $1.5 million, it’s not a concern (yet). #goals
Since we’re investing money that we’ve already paid tax on, do we have to pay more taxes?
Yes. *womp womp*
“Any interest and dividends you receive are generally taxable to you in the year in which you receive them, and if you sell an investment, you’ll have to pay the resulting capital gains tax liability.” – from The Motley Fool
Learning more about taxes, especially how to minimize them, is on my list of priorities for next year. We’ve done our best to minimize our expenses, maximize our investments, so taxes represent our next opportunity for PF improvement.