Things To Know Before Opening A 401 Brokerage Account
If you’re considering a 401 brokerage account, the first thing you must decide is what percentage of your retirement savings you’d like to put there. You can put all of it there if you’d like, but it may be better to leave part of it in a mutual fund chosen by your employer, just to be safe.
You should also note that some 401s only allow you to transfer funds to a brokerage account during a certain window each year. If this is the case for your plan, make a note of this time frame so you don’t miss it.
Next, look into the account maintenance fees and any other fees associated with the investment products you’re considering. Ideally, you can keep these at or below 1% of your assets. That means you’ll pay $1,000 or less per year for every $100,000 you have in the account. If you plan to employ a financial adviser to help manage or offer suggestions for your 401 brokerage account, don’t forget to factor in those fees as well.
If a 401 brokerage account isn’t a good fit for you, go with one of your employer’s investment selections instead. This is the safer bet if you don’t have the time or interest to learn more about investing. These are your retirement savings at stake, so you don’t want to take unnecessary risks.
Track And Manage Your Portfolio
You cant just stop at buying stocks now you have to manage your portfolio.
If you went the financial advisor or robo-advisor route, much of the work of maintaining your portfolio will likely be done for you. But if you used an online broker or trading app, youre going to need to regularly check in on your portfolio and make sure its still meeting the goals you set when you first started buying stocks.
Diversification is a critical part of managing a portfolio. A diversified portfolio will have a mix of stocks, bonds and cash that aligns with your goals and risk tolerance. Within each of those asset classes, you should have diversification as well. The benchmark S& P 500 Index contains 11 industry sectors, and experts say its a good idea to have stocks from a wide range of different industries in your portfolio. You should also have different company sizes and locations represented in your portfolio: large-cap, mid-cap and small-cap stocks, as well as both U.S. and international businesses. There are also different kinds of stocks to include, like growth stocks and value stocks.
If you invest solely in funds, some of this diversification will be done for you, but if you want to buy individual stocks, experts say having at least 20 in your portfolio is a good rule of thumb. A diversified portfolio ensures that even if one area of your portfolio tanks, you wont lose everything, since assets perform differently depending on market conditions.
How Do I Buy Stock By Myself
This is a valid question, and initially this stumps beginner investors. This is primarily because they’re used to dealing with a bank that purchases mutual funds.
However, the process is pretty easy. All you need to do is open up a self directed brokerage account at a brokerage like Qtrade, which we believe offers the best platform in Canada.
Of note, you can also purchase through a direct stock purchase plan via the company itself. However, direct stock purchase plans are often confusing, and may require large amounts of capital before the company allows you to buy. The best option is by far a brokerage.
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Open A Brokerage Account
In order to trade stocks, you need to have a brokerage account. We’ll go over why there are particular situations where you don’t need one, but 99.9% of the time it’s going to be beneficial to make investments through a brokerage.
So, what brokerage should you choose?
For the longest time I had suggested a discount brokerage here in Canada called Questrade.
I was a decade long client with Questrade, and generally enjoyed the platform.
However, my tune changed and after reviewing a popular platform here in Canada Qtrade, I decided to move all of my investment accounts over to them.
To understand why I made the switch, have a read of my Qtrade review here. In my opinion, it’s the best brokerage in the country, bar none.
I believe the platform is more transparent, more intuitive and most importantly more directed towards beginner investors.
If you’re looking to get started with buying stocks here in Canada, Qtrade is a no brainer in my opinion. Although commissions might be cheaper at a brokerage like Interactive Brokers, I believe Qtrade offers a more robust platform.
And, there is even perks if you’re starting young, like their Young Investor Pricing.
The process of opening an account with Qtrade takes all of 10-15 minutes. Just have the following documents ready:
- Your social insurance number
- Details of your net worth
The Bottom Line On Top Stocks To Own In A Recession
Fortis and Telus pay attractive dividends that will continue to grow over the next few years, regardless of the state of the economy. If you have some cash to put to work in a self-directed RRSP or TFSA pension fund, these stocks should be good defensive picks.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium service or advisor. Were Motley! Questioning an investing thesis even one of our own helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
The Motley Fool recommends FORTIS INC and TELUS CORPORATION. Fool contributor Andrew Walker owns shares of Telus and Fortis.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our reporters and editors focus on the points consumers care about most how to save for retirement, understanding the types of accounts, how to choose investments and more so you can feel confident when planning for your future.
Ways To Invest In Blockchain
Besides investing directly in stocks of companies making use of blockchain, there are other ways to get in on the action.
- Directly purchase cryptocurrencies, such as Bitcoin or Ethereum, or buy shares of a cryptocurrency trust like Grayscale Bitcoin Trust .
- Buy an exchange-traded fund that specifically invests in shares of companies with exposure to blockchain. Two notable examples are Amplify Transformational Data Sharing ETF and Reality Shares Nasdaq NextGen Economy ETF .
- Participate in crowdfunding a new cryptocurrency through an initial coin offering — purchasing a new cryptocurrency issued by a developer working on a new blockchain project.
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Plan Out Which Stocks You Want To Invest In
With so many stocks to choose from, it helps to research and make a plan first. That way youll know exactly which companies you want to buy into and how much youll spend for each share. Youll also need to decide how many shares of each companys stock you want to buy.
Although no one can predict the market, it can help to watch the stocks youre interested in before buying. That way you can be more prepared for what youll see after you buy. It could also help to check up on a companys performance. For one, you may end up rethinking buying a share in a company whose value is actively decreasing.
Of course youll also need to stick to your budget. If you can only afford to spend $10 per share, youll want to avoid any expensive shares, no matter how tempting. Your final budget will depend on the price of each share and how many shares you want to buy. Dont forget that when you buy a stock, youll have partial ownership of that company.
E: Dollar Cost Averaging
This isn’t necessarily an investment strategy that will determine what stocks you will buy, but it will determine how you will buy those stocks.
Dollar cost averaging is somewhat of an automated form of buying shares of companies you like.
When an investor dollar cost averages, they are deciding to set aside an allocated amount toward a particular stock, regardless of the price. This can be every week, month, semi annually or even yearly.
The key to dollar cost averaging when buying stocks is to buy an exact dollar figure of the stock regardless of the price.
So, as an example, youve allocated $1000 every two months to stock ABC. The price currently sits at $50 a share. Your first purchase allows you to buy 20 shares.
Over the course of the next two months, the stocks price has dropped to $40. Youve done your research, and you still like the company, so you purchase another $1000 in shares.
Youve now dollar cost averaged your way down in price, as you now own 20 shares from your initial purchase at $50 a share, and 25 shares at $40.
You now own 45 total shares for $2000, or an average price of $44.44 a share.
Dollar cost averaging allows you to capitalize on short term volatility and build growth over the long term. Its important to keep up with the overall health of the company.
If something has changed, especially for the worse, you may want to cease your dollar cost strategy and instead sell your position.
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Select An Online Stockbroker
The easiest way to buy stocks is through an online stockbroker. After opening and funding your account, you can buy stocks through the brokers website in a matter of minutes. Other options include using a full-service stockbroker, or buying stock directly from the company.
Opening an online brokerage account is as easy as setting up a bank account: You complete an account application, provide proof of identification and choose whether you want to fund the account by mailing a check or transferring funds electronically.
» How do you find a broker? Compare options among the best brokers for stock trading
Solo 401k Brokerage Account Tips
Alongside alternative investments, many Solo 401k plan owners also invest in stocks and derivatives. For instance, there can be time between alternative investments when cash is sitting in your Solo 401k that you could invest in highly liquid stock assets. Or maybe you want to invest idle reserve funds where there is a potential for a higher rate of return compared to a savings account. Although stock market investing may not be your preferred assets class, there are times when traditional equities investing make sense while you are waiting to invest your money elsewhere.
Because, you are not opening a new 401k account with the stock brokerage , the brokerage is NOT the custodian/trustee of your 401k plan you are. The only thing the brokerage is doing is providing brokerage services to your existing Solo 401k you can still control all of your stock market transactions.
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Decide On Your Strategy For Investing In Stocks
I know we’re on step 5 and we haven’t even begun to buy and sell stocks yet, but it’s very important you get all your ducks in a row before you buy your first stocks online.
Much like a chess player goes into a match with a specific strategy, you must do so with your investments.
Fortunes have been lost by ill-informed investors, and this is your retirement and financial future at stake here. So, taking the time to learn how to properly buy stocks online in Canada is key.
Before we start to buy and sell stocks, we need to decide what type we’re going to buy.
A solid investment strategy will allow us to do this.
When it comes to stock trading, there are 4 key long term strategies we’re going to go over.
Beginners Tips For Investing In Stocks
Nobody loves making up rules more than investment guru types. Many are certified garbage, but one keeper we know is called the 5% rule. This states that proper diversification means that no one investment or sector should account for any more than 5% of an entire investment portfolio. So you want Apple stock? Great, but it should be no more than 5% of your portfolio. Pharmaceuticals? Cool. But keep them below 5%.
One caveat: since mutual funds and ETFs often contain many individual stocks and sectors within them, you might very well hold more than 5% of your portfolio in one ETF or mutual fund and still be following the 5% rule.
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Determine How Much You Can Contribute
Workers under 50 can contribute up to $19,500 to a 401 in 2020, but how much you actually earmark for the account depends on your income, debt level and other financial goals. Still, financial experts advise contributing as much as you are able to, ideally between 10% to 15% of your income, especially when you are young: The sooner you start investing, the less you’ll have to save each month to reach your goals, thanks to compound interest.
“That’s your company literally saying: ‘Hey, here’s some free money, do you want to take it?'” financial expert Ramit Sethi told CNBC Make It. “If you don’t take that, you’re making a huge mistake.”
Trade Stocks In A Solo 401k Plan
Now you have an understanding of how convenient it is holding a stock brokerage account inside of your Solo 401k. With that, youre going to want to know about strategies available inside the brokerage account. Coming soon is Part 2 of this blog that will cover more in-depth topics including:
- How do I trade options?
- Can I buy futures in my retirement plan?
- How do I short stocks in a Solo 401k?
- Can you do uncovered calls in a retirement plan?
- Can I buy LEAPS in a retirement plan?
Perhaps you are currently most comfortable investing in stocks and bonds. In the future it may be worth expanding your vision to learn about alternative investments like real estate or bitcoin. Or perhaps youre already highly experienced with alternative investments. For diversification, youd like to cast an even wider net for your portfolio that includes a brokerage account. A Solo 401k is the one account that puts you in full control of when, where, and how you want to invest.
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Learn How To Buy A Stock On Your Brokerage
So finally, at step 6 of this guide on buying stocks, we’re ready to actually buy.
Many online brokerages have different interfaces and nuances to go about buying a stock, but the core method of doing so will be the same.
In my eyes, the best online brokerage in terms of simplifying the buying and selling process is Qtrade. Here is Qtrade’s order page below:
Discount brokerages tend to offer cheaper commissions, but it’s very important we don’t get focused on commissions only, and instead choose the best online brokerage that is going to help us succeed.
We need to now go over some terminology that is going to help you narrow down exactly how to place an order with your brokerage and actually buy your first stock.
And For Investors With A Shorter Time Horizon
When you’re nearing or in retirement, market downturns can be scary since you may already be relying on your 401 or will be soon.
Still, investors shouldn’t make changes to their 401s based on short-term market events, says Mike Shamrell, vice president of thought leadership at Fidelity. Even if you’re approaching retirement age, you may need your savings to last multiple decades after you retire, he points out.
“You don’t want to be in a position where you pull back and become a little bit more conservative, then you potentially miss out on potential gains if the market rebounds,” Shamrell says. “That’s why we encourage people to maintain their allocation and stay the course.”
That said, now could be a good time to revisit your allocations and ensure that it still aligns with your risk and timeline. Financial advisors tend to recommend that as investors get closer to retirement, they shift some of their allocations away from risky investments, like stocks, into more conservative assets, like bonds.
The exact allocation will depend on your specific situation, but for investors 10 or more years out from retirement, some experts recommend 85% to 95% in stocks and 10% to 15% in bonds, with that ratio shifting to 70% stocks and 30% bonds for those between five and 10 years out from retirement and to 60% in stocks and 40% in bonds for those who are retired or within five years of retiring.
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Choose Your Stock Order Type
Dont be put off by all those numbers and nonsensical word combinations on your broker’s online order page. Refer to this cheat sheet of basic stock-trading terms:
A request to buy or sell a stock only at a specific price or better.
Once a stock reaches a certain price, the stop price or stop level, a market order is executed and the entire order is filled at the prevailing price.
When the stop price is reached, the trade turns into a limit order and is filled up to the point where specified price limits can be met.
There are a lot more fancy trading moves and complex order types. Dont bother right now or maybe ever. Investors have built successful careers buying stocks solely with two order types: market orders and limit orders.
With a market order, youre indicating that youll buy or sell the stock at the best available current market price. Because a market order puts no price parameters on the trade, your order will be executed immediately and fully filled, unless youre trying to buy a million shares and attempt a takeover coup.
Dont be surprised if the price you pay or receive, if youre selling is not the exact price you were quoted just seconds before. Bid and ask prices fluctuate constantly throughout the day. Thats why a market order is best used when buying stocks that dont experience wide price swings large, steady blue-chip stocks as opposed to smaller, more volatile companies.
Good to know: