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Best Roth IRA Account Providers of 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Roth individual retirement accounts (IRAs) are a powerful vehicle for retirement savings. That’s because in a Roth IRAs your money grows tax free. Here’s how it works: You deposit money into your Roth IRA on which you’ve already paid income taxes, you earn interest on those funds over the life of the account and withdrawals are not taxed as income — unlike withdrawals from traditional IRAs. There are other benefits of a Roth IRA: No required distributions, unlimited deposits for qualifying individuals, and lenient early withdrawal rules.

For many investors, Roth IRAs are an important component of a well-planned retirement strategy. But where should you open your Roth IRA? There’s no shortage of brokerages that want your retirement dollars, and this embarrassment of riches can make deciding difficult. We have surveyed the field of options and narrowed the list to the best Roth IRA accounts for both active investors and more hands-off savers. Read on for our review.

How we chose the best IRA account providers

To arrive at our list of the best Roth IRA accounts, we thoroughly reviewed the broker and robo-advisor landscape. In our latest round of research, we evaluated 39 different product offerings. For each product we collect dozens of different data points from fees, to portfolio construction, customer service, research offerings, account minimums and firm reputation.

For our rankings for the best Roth IRAs for active investors, the most important criteria were trading fees, account minimum, the diversity of investment products offered (stocks, bonds, ETFs and mutual funds) and low account fees (yearly fees, transfer fees and inactivity fees).

For our rankings for the best Roth IRAs for hands-off investors, the most important criteria were management fees and account minimums and considered ease of use and customer support. See our methodology article for more details on how we created our rankings.

Best Roth IRAs for hands-off investors

Many folks do not have the time, interest, or expertise to invest their money themselves. The great news is that you actually don’t have to. You can hire a robo-advisor to do the job for you. For a competitive annual management fee plus the expenses of the selected funds — usually totalling 0.35% to 0.50% of your portfolio per year — a robo-advisor will invest your money in a portfolio tailored to your financial goals. See below for our picks for best robo-advisors for Roth IRAs.

 Annual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Fidelity Go$0Close to 0.00%*$0
E-Trade Core Portfolios$0Close to 0.00%*$500
Wealthfront$00.09%$500
Ally Invest Managed Portfolios$00.08%$100

*Most of the Fidelity Go portfolios are composed of Fidelity Flex funds, which have 0.00% expense ratios. A small amount is held in the Fidelity Government Cash Reserves Fund, which does come with some expense charges. However, some of those fund expenses may be offset by a “variable fee credit”. See Fidelity’s FAQs for more.

Fidelity Go — Transparency and low costs

Fidelity Brokerage Services, LLC What you see is what you get with retirement powerhouse Fidelity’s robo-advisor Fidelity Go. Fidelity charges a 0.35 % annual management fee and close to 0% in expense ratio fees. Considering that almost all robo-advisors pass on to customers ETF expense ratio fees — they range from 0.08% to more than 0.15% a year — Fidelity helps you feel confident you’re lining your own pockets, not the fund manager’s. With no minimum account size and no fees to transfer money in or out of your account, it’s easy to get started whether you’re scraping together Washingtons or swimming in Benjamins. One note of caution: Fidelity Go does invest solely in Fidelity-owned funds, so if you are a conservative investor, you may want to consider also investing with a robo-advisor that spreads your investments across different fund companies.

Fidelity Go Highlights:

  • Low fees: 0.35% management fee and almost 0.00% expense ratios. Fidelity invests most of your money in their proprietary Fidelity Flex funds, which have 0% expense ratios and are only available to select customers. The company also provides rebates to offset the fees they charge to hold other funds.
  • Size and experience: Fidelity is one of the biggest retirement brokerages in the US. The firm manages money for over 30 million customers, so your investment will be in very experienced hands.
  • Both human- and robot-managed funds. The funds in Fidelity Go portfolios are a blend of actively managed and passively managed funds, so you get the advantages of both investing approaches.
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E-Trade Core Portfolios — Smart beta and SRI portfolio options

E-Trade Securities LLC You may know E-Trade from their talking baby commercials, however robo-advisor Core Portfolios is more than just clever marketing. Low total fees — a 0.30% management fee and an average expense ratio of 0.06% — plus a low $500 minimum balance make it easy to start investing and keep investing with Core Portfolios. One aspect that sets E-Trade apart is their diversity of portfolio options. Investors can choose between three different portfolio sets: core portfolios, socially responsible portfolios, or smart beta portfolios, each of which includes a mix of equities designed to meet more tailored investing goals. One item to watch out for with E-Trade retirement accounts are penalty fees: They charge $25 for early IRA distributions, if you need to recharacterize an IRA contribution to a Roth IRA, or if you accidentally overfund your Roth IRA.

E-Trade Core Portfolios Highlights:

  • E-Trade does not invest your dollars in their own proprietary funds, reducing potential conflicts of interest. Some investors prefer this approach, which is the opposite tack to the one taken by Fidelity, for example.
  • Socially responsible investing (SRI) and smart beta portfolios provide options for investors who want to tailor their IRAs for specific goals. SRI strategies allow you to put your money to work with only vetted socially and environmentally responsible companies, while smart beta attempts to outperform more conventional funds with frequent reweighting of equity holdings.
  • Low fees: 0.30% management fee and 0.06% avg expense ratio.
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Wealthfront — Premium strategies for large accounts

Wealthfront Advisers LLC Wealthfront is one of the pioneers of the robo-advisor movement, and their continued commitment to ultra-low fees makes them an attractive place to grow your Roth IRA. The annual cost is a 0.25% annual advisory fee on investments management fee plus an average expense ratio of 0.07% to 0.16%, which is in line with other leading robo-advisors. If you’re looking for guidance, Wealthfront offers a suite of free tools to help you plan for retirement and other major financial life events. Since Wealthfront is all-digital, face-to-face interaction isn’t an option, which some folks may love — or dislike. If you want to shoot the breeze with your broker at their desk, other options may suit you better.

Wealthfront Highlights:

  • Premium investment strategies available for investors with large accounts including Risk Parity for accounts over $100,000 and Smart Beta for accounts over $500,000.
  • A minimum deposit of only $500 to open an account makes Wealthfront accessible for beginning investors.
  • Free financial planning tools for retirement, college savings, college and time off for travel.
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Ally Invest Managed Portfolios — Automatic portfolio rebalancing, extra account options

Ally Financial Inc. Like a trusted family member, Ally Invest Managed Portfolios will babysit your retirement savings so that you can go have more fun — it’s up to you whether that means hiking an extra mile in the woods or rehearsing your Elvis impression for karaoke. Ally’s robo-investing service offers ETF portfolios diversified across five different asset classes to give you the best chance at growth, while keeping fees to a minimum. Ally offers 24/7 support as well, which means that you’ll never be on your own if you have to sort out a complicated retirement question. One drawback with Ally is that, once you deposit money in a Roth IRA, they charge you fees if you try to transfer or close an account — $50 for a full or partial account transfer or $25 to close an IRA account.

Ally Invest Managed Portfolios Highlights:

  • Low, $100 minimum deposit makes it easy to start investing for retirement.
  • Automatic portfolio rebalancing adjusts for market swings, ensuring that your portfolio matches your priorities.
  • Ally offers many services beyond Roth IRAs, including a savings account with a 1.70% APY, traditional brokerage accounts, CDs, and money market accounts.
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Best Roth IRAs for active investors

The brokers below offer up a universe of retirement investing options for investors who are confident making more of their own investing decisions. If the idea of choosing the stocks, bonds and funds for your retirement sounds exciting – and you have the time to devote to it – a Roth IRA account with one of the brokers below will allow you to avoid management fees and keep more of your retirement dollars to yourself.

 Fee per tradeCommission-free ETFsCommission-free ETFs
Fidelity$0.005033,636
Charles Schwab$0.005143,457
E-Trade$0.002774,222
TD Ameritrade$0.005713,985

Fidelity — Best overall offering

Fidelity Brokerage Services LLC It is not by chance that Fidelity leads our rankings for Roth IRAs, both for active investors and hands-off investors. In terms of investing selection, Fidelity has very robust offerings for retirement investors, including over 3,600 no-transaction-fee mutual funds and over 500 commission-free ETFs. There is no minimum deposit to open an account, and while Fidelity’s $0.00 per trade fee is not the lowest in the industry, it is on the low end. Fidelity does not attempt to lock you in to their service, charging no fees to transfer funds or close your account. While their website and app may not have the bells and whistles of some of the newer brokerage startups, Fidelity remains a cornerstone for retirement investors with solid offerings and low fees.

Fidelity Highlights:

  • Low fees: Fidelity charges a $0.00 per trade commission and no fees to transfer funds or close accounts.
  • Fidelity’s proprietary ZERO funds charge 0.00% in expense ratios: This means that every penny of growth stays right in your portfolio.
  • Helpful retirement planning tools and dashboards: These tools help you build a retirement savings plan and stay on track.
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Charles Schwab — Best customer service

The Charles Schwab Corporation The buddy system isn’t just for kids, it’s actually great for retirement planning. Charles Schwab stands out among its peers for IRA customer support, with a dedicated IRA phone line to help answer questions and free consultations with Schwab fixed income specialists, which is a great resource for investors close to retirement. The smorgasboard of investing options that Charles Schwab offers through its Roth IRAs should be enough to satisfy any retirement planner. It’s easy to start, with $0 minimum deposit to open an account, and $0.00 per trade commissions should keep your piggy bank intact. One caveat to keep in mind is Schwab’s transfer fees. It costs $25 to partially transfer an account to another brokerage and $50 to transfer an entire account.

Charles Schwab Highlights:

  • Excellent customer service: Schwab offers a dedicated IRA phone line, 24/7 support and over 350 branch locations for in-person consultations.
  • Strong low-fee investment selection: The firm gives investors access to over 500 commission-free ETFs and more than 3,400 no-transaction-fee mutual funds.
  • A broad selection of educational resources: Schwab’s handy retirement calculators and investing educational resources help you make a retirement plan and keep the plan on track.
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E-Trade — Great mutual fund selection

E-Trade Securities LLC Opening a Roth IRA at E-Trade is simple with no minimum deposit required to start. Once you are in the door, low-cost choices abound: E-Trade offers over 4,200 no-transaction-fee mutual funds and over 270 commission-free ETFs, accompanied by planning tools and screeners to help you make the right selections for your retirement portfolio. The standard trading commission, $0.00 per trade, is on the high side, though this drops to $ if you trade more than 30 times per quarter. Fees can sneak up on you if you are not careful, so keep an eye out. E-Trade charges a $25 penalty if you overfund an IRA, if you need to recharacterize an IRA contribution, or if you want to make early IRA withdrawals.

E-Trade Highlights:

  • Trading bonuses: Cash bonuses and 500 free trades available for new accounts with deposits of more than $25,000 within the first 60 days.
  • Wide selection no-fee funds: E-Trade gives investors access to more than 4,200 no-transaction-fee mutual funds and over 270 commission-free ETFs.
  • Powerful mobile trading apps: E-Trade gives you access to charting tools and research materials for when you’re on the go.
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TD Ameritrade — Best investment selection overall

TD Ameritrade The smorgasboard of investing options at TD Ameritrade is enough to satisfy even the largest appetite for retirement investing. TD Ameritrade’s low-fee offerings are impressive with over 500 commission-free ETFs and over 3,900 no-transaction fee mutual funds. TD also provides free analyst reports, tools and watch lists in order to help you sift through these plentiful options. With retirement-specific fees TD Ameritrade generally scores well, with no fees for early withdrawals, over-contributing or recharacterizing IRA contributions. TD Ameritrade’s trading fees are on the high side at $0.00 per trade, so if you plan to trade a lot you may want to consider lower-cost brokers.

TD Ameritrade Highlights:

  • Useful retirement planning resources: TD offers its users a plethora of retirement planning resources, including calculators, educational videos and webcasts.
  • Trading bonuses for large accounts: The firm rewards investors with up to 500 free trades for the first 60 days and cash bonuses for deposits of $25,000 or more.
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Individual retirement account FAQs

What is a Roth IRA?

A Roth IRA is an after-tax investment account, meaning you deposit dollars into your account on which you’ve already paid taxes. Your funds grow tax-free over the life of the account, and you receive qualified tax-free distributions in retirement. A big benefit is that there are no required minimum distributions (RMDs), meaning that you are not required to withdraw funds at age 70 ½. There are also no age restrictions for contributing to a Roth IRA, so as long as you have earned income you can contribute.

In order to make tax-free withdrawals, five taxable years must have elapsed since contributions were first made to the account, and one of the following secondary criteria must also be met:

  • The account owner reaches age 59 ½.
  • The account owner becomes disabled.
  • The account owner meets the IRS’ first-time homebuyer qualifications.
  • The account owner dies, and distributions are made to a beneficiary or the estate.

Roth IRAs are good vehicles for passing on tax-free assets to beneficiaries and heirs because they aren’t subject to required distributions, so they can grow until the account owner’s death.

What should I look for when comparing brokerages for Roth IRAs?

With a large number of brokers to choose from, you need to do research to ensure you choose the best Roth IRA account for your needs. Here are a few factors to compare during your search:

  • Annual fees: Brokers assess an annual fee for Roth IRAs, often expressed as a percentage of the assets under management. Although this fee may be as low as 1% and may seem negligible, as your account grows, that small percentage can become quite a chunk of change. You can start your search by looking for accounts with the lowest annual fees possible. Some providers don’t charge any annual fees and instead make money from trades and commissions.
  • Minimum initial funding: Does the Roth IRA provider require a certain minimum initial deposit to get started, and if so, can you afford it? If you have a decent stash of funds to invest, you also could look for bonuses and promotions, where the account provider gifts money or other perks when you meet a deposit minimum.
  • Commissions and trading fees: Most Roth IRA custodians assess a commission for each trade you make, which means you’ll lose some money whenever you buy or sell assets. However, some brokerages also offer commission-free assets, such as ETFs and mutual funds. Choosing the right broker can help you minimize or entirely avoid these fees.
  • Investor tools to help you make smart investing decisions: Although all investments carry some risk, some investment strategies are smarter than others. Many brokerage accounts offer research tools and access to live financial professionals to help you choose the best funds for your Roth IRA.

Should I get a Roth IRA or a traditional IRA?

Like everything to do with finances, it depends on your unique situation. Generally speaking, if you think you will be in a higher income tax bracket after you retire than before you retire, you’ll want to invest more in a Roth IRA, which allows you to withdraw earnings tax free. If you think you will be in a lower income tax bracket in retirement than before retirement, then you’ll want to have more invested in a traditional IRA.
Realistically, predicting your future income tax bracket can be like trying to predict the weather in Kansas City, Mo. four months from Tuesday: There are a lot of unknown factors. A hybrid approach, with money split between a Roth IRA and a traditional IRA, while also contributing to a 401(k), can be a good balance for many folks. It gets you the main benefits of a Roth IRA — tax-free growth, no required minimum distributions and more lenient early withdrawals — while also leaving open the benefits of a traditional IRA or 401(k) — an upfront tax deduction and tax-deferred growth.

What if I need to take money out of my Roth IRA?

If you watch enough heist movies you know that even best-laid schemes rarely go according to plan. Luckily, if life throws your grand financial plan off track and you need to withdraw money from your retirement savings, Roth IRAs offer flexibility. The principal — the money that you deposited into a Roth IRA account — is always yours to withdraw penalty-free. If you need to withdraw some of the interest earnings — the money earned from the principal — you will have to pay an additional 10% penalty to the IRS on earnings you withdraw before age 59 ½ or before the account is five years old. This 10% penalty is in addition to any taxes you have to pay on the withdrawal as normal income.

How long should I keep money in my Roth IRA?

As with any long-term investment, you should be comfortable salting away funds in a Roth IRA for at least five to eight years, and ideally until you are retired. Stock market fluctuations can cause investments to decline in down years, and a five-to-eight year time frame provides enough time for funds to recover in case of a drop, based on historical market cycles. If you are lucky enough to be able to retire, you’ll want to look at all of your retirement accounts and balance withdrawals from your Roth IRA with your other income strategies.

How much can I contribute to a Roth IRA?

For 2019, you can contribute up to $6,000 per year to your Roth IRA (or $7,000 if you’re 50 or older) as long as your income is not above the IRS limits. Don’t throw in the towel if your income is above the IRS cap, though. There are ways to roll money into a Roth IRA through a “backdoor IRA”, which entails opening up a Traditional IRA that you then convert to a Roth IRA.

What is a Roth 401(k)?

A Roth 401(k) is a type of retirement plan that many employers offer their workers. The main difference to a traditional 401(k) is that contributions are made using after-tax dollars, instead of pre-tax dollars. By using after-tax dollars, you can withdraw any interest earnings tax-free, come retirement time. A main benefit to Roth 401(k) accounts is that there are zero income caps, meaning that you can contribute money to a Roth 401(k) even if you make more than the income caps for a regular Roth IRA. One big difference to a Roth IRA is that you do have to start taking required minimum distributions starting at age 70 ½. Luckily, you can roll a Roth 401(k) over into a Roth IRA, which would help you avoid required minimum distributions.

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Jamie Cattanach
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Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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Investing

J.P. Morgan You Invest Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Chances are you’ve heard of J.P. Morgan Chase. It’s one of the major players in the financial space, and it’s long had a brokerage arm in addition to providing global banking services. Now, though, J.P. Morgan is getting into the online brokerage space with You Invest.

You Invest is an online trading platform that allows you to buy and sell individual stocks and exchange-traded funds (ETFs) without the need for a human broker. This review will look at what’s offered and provide you with the information you need to decide if it’s right for you.

You Invest offers a way for you to seamlessly connect your Chase bank account to your brokerage account. Additionally, you end up with access to plenty of educational materials and the ability to understand your total portfolio.

J.P. Morgan You Invest
Visit J.P. MorganSecuredon J.P. Morgan You Invest’s secure site
The bottom line: You Invest offers a fairly standard online brokerage experience with the perks of low-cost trading fees and a wealth of investor education.

  • Pay just $2.95 per trade after receiving 100 free trades.
  • Enjoy a large selection of investments, including stocks, bonds, mutual funds and ETFs.
  • Manage investments according to goals with the Portfolio Builder tool.

Who should consider You Invest

You Invest is ideal for beginning investors, especially those looking for education and assistance building a portfolio that will help them reach their goals. Intermediate and advanced investors also can benefit, but the educational tools and resources are especially helpful for novice investors.

Additionally, it connects to your other Chase accounts, making it easy for you to move money from your bank account to your brokerage account and vice versa. If you already bank with Chase, using You Invest to manage your portfolio might not be a bad choice.

While $2.95 per trade is a low cost, this product might not be the best choice for active traders. For traders who can keep their trade volume low, this can be an excellent brokerage since you receive 100 free trades in the first year after an account is opened — with the opportunity to qualify for more free trades in subsequent years.

J.P. Morgan You Invest fees and features

Current promotions

Up to 100 free trades

Stock trading fees
  • $2.95 per trade
  • $0 per trade for Chase Private Client, Chase Sapphire Banking, J.P. Morgan Private Bank and J.P. Morgan Securities clients
Amount minimum to open account
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
Ease of use
Mobile appiOS, Android
Customer supportPhone, Chat, 5,100 branch locations
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases
  • Earnings call recordings

Strengths of You Invest

The educational tools and insights provided by You Invest are where this offering shines. They help you find the right mutual funds and stocks, and get you to understand your investing needs.

  • Low trading fees: To start, you get 100 free trades from You Invest. After you use your allotment, trades cost only $2.95. Among online brokers that charge trading fees, this is one of the lowest. If you’re not an active trader, you might be able to avoid paying fees fairly easily. You can get more free trades each year if you use certain Chase banking products, such as Premier Plus Checking.
  • Educational resources: You Invest offers a number of helpful articles about investing, strategy and more. It’s possible for you to learn the basics and then apply them to your portfolio.
  • Portfolio Builder: If you have at least $2,500 in your account, you can take advantage of this tool designed to help you choose the right investments for your portfolio. You’ll receive guidance on putting together a portfolio based on your answers to questions designed to gauge your risk tolerance, investment goals and time horizon.
  • Powerful screening tools: You can use these tools to set parameters and then find assets that fit your requirements. A list of options appears, and when you’re looking at Mutual funds , You Invest also includes Morningstar ratings and analysis of where they might fit into your portfolio.

Drawbacks of You Invest

A review of You Invest wouldn’t be complete without a look at some of the downsides. In many ways, You Invest is a typical online brokerage option. Other than some of the educational and portfolio building tools, there’s not a lot to distinguish this from other brokers.

  • No standalone app: Rather than offering a standalone app, you access You Invest through J.P. Morgan Mobile. Until you get used to it, it can be somewhat disconcerting to navigate to your trading app within the regular app.
  • Limited account types: There are only two account options with You Invest: taxable and IRA. You can get a Joint taxable account as well as an individual account, and there is a Roth option with the IRA. However, if you’re hoping for a custodial account or 529, you won’t find it with You Invest.
  • No managed portfolios: Right now, you won’t find managed portfolios, but they are supposed to be coming in 2019. So if you’re more of a hands-off investor, you might want to wait until there are more options available.
Fees
$2.95 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Up to 100 free trades

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Cash bonuses are available for new accounts. Bonuses start at $50 if you deposit or transfer $10,000+.

Is You Invest safe?

Any investment comes with the risk of loss. However, You Invest is insured by the SIPC for up to $500,000. Additionally, J.P. Morgan is a member of FINRA. As a result, you’re reasonably protected — especially when you consider that this is a company with more than $1 trillion in assets under management. It’s not likely to fail.

Just make sure you understand your own risk tolerance before you invest. While insurance protects you from failure, you’re not protected from market losses.

Final thoughts

You Invest can be a great option for middle-of-the-road investors who want a little more flexibility in their portfolios but still need some guidance. There are a number of assets to choose from, and the educational tools and resources allow you to build a portfolio based on your long-term goals and expectations.

Depending on your goals, there might be other products that work for you. For those more interested in a hands-off approach, Betterment might be a more suitable choice. You also can make trades for less with a service like Robinhood. However, you might not get the same level of educational tools with Robinhood, and Betterment won’t let you personalize your portfolio to the same degree.

If you want a low-cost, personalized way to invest — learning as you go — and if you’re already a Chase customer, opening a You Invest account might be a good way to move forward.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
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Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

How to Make Money in Stocks

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

500 free trades with a qualifying net deposit of $100,000

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$0
Promotion

Get up to $600 when you open and fund an account within 60 calendar days of account opening, depending on deposited amount.

Fees
$0.00 per trade

Per Trade Stock Trading Fee

Account Minimum
$500
Promotion
New accounts with a deposit of at least $5,000, may be eligible for a cash bonus, which can range from $100 to $2,500 depending on the amount deposited.

3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

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Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here