Posted: 23 September 2021
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In an attempt to broaden The Hatch Fund’s reader base, this article serves as a short primer on how to get started with investing. It is aimed at getting people to explore and think more deeply about the topic of personal finance, saving and investing. So if investing is new to you, you have come to the right place. I will keep the information as easy to understand as possible to help you get started on your investing journey.
1. What is a Brokerage?
Now that you know the reasons to invest and the various asset classes that you can invest in, the next step is to setup a brokerage account to get you started on your investing journey.
A brokerage account will allow you to buy and sell various financial instruments.
A brokerage is essentially a middleman that helps to facilitate a transaction by connecting buyers and sellers. Brokerages perform a few key functions that help people to invest / trade:
- Provide financial information, including pricing information, on their trading platform;
- Provides a trading platform or communication line for customers to buy or sell financial instruments;
- Execute trades on the financial markets on behalf of the customers, at their expense;
- Provide information about other market participants, making the correct decision for the client to conduct the transaction;
- Lending to clients for margin transactions; and
- Storage and protection of customer data
Here is a list of the most commonly used ones in Singapore: https://www.sgx.com/retail-brokers
Types of Brokerage
Broadly, there are two main types of brokerages – a full-service broker and an online broker. A full-service broker is a licensed financial broker-dealer firm that provides a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more.
An online broker facilitates buying and selling of a security over an electronic network. The transaction is usually effected through the broker’s proprietary trading platforms. Unlike a full-service broker, online brokerages do not provide value-added services like executing trades on behalf of clients, providing research or retirement planning. As a result, online brokers tend to have much lower commission fees and trading charges.
Currently, online brokers like Moo Moo and Tiger Brokers also offer libraries / learning resources that help investors to grow and learn as they invest with these brokerages.
Personally, I have accounts open with both types of brokerages. Apart from cost, the most striking difference is the relationship you have you with your assigned broker at a full-service brokerage firm. I really do appreciate the additional insights and research reports that the broker shares with me on a daily basis and I can see how valuable this can be especially if you do not have access to financial databases.
2. Factors to Consider when Opening a Brokerage Account
If you are totally new to investing, the bottom-line is to be cognizant of trading fees. Do not make the mistake of overtrading and unknowingly paying for lots of trading / commission fee as I did when I first started.
As a beginner, the best thing you can do for yourself is to have some practical experience. Hence, my advice is to start with a small amount and open an account with any no-commission / low fee brokerage to get started. The biggest hurdle is always taking the first step of setting up your account.
In subsequent articles, I will look to discuss various investment strategies that you can adopt, but until then let me leave you with some resources to get you started:
- Warren Buffett’s Investing Tips for People Who Don’t Follow the Stock Market, Motley Fool
- Warren Buffett’s / Charlie Munger’s 4 Principles of Investing
- The Acquirers Fund ETF: ZIG When The Market Zags
- Why diversification matters, Fidelity