3 Mistakes to Avoid in Your Brokerage Account – Motley Fool

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by Maurie Backman | Published on Oct. 4, 2021
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It's best to steer clear of these blunders for a successful investing career.
Opening a brokerage account can help you build a strong investment portfolio — one that helps you grow wealth over time. But it’s important to use your brokerage account carefully. And that means steering clear of these mistakes.

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Some brokerage accounts charge a fee each time you make a trade, and those fees can really cut into your profits if you trade a lot. But even if you have a brokerage account that doesn’t charge a per-trade fee, it’s still good to not trade too often.
Doing so could mean selling stocks too quickly and not profiting from them as you deserve to. Or, it could mean losing money — especially if you rush to unload a stock every time its value starts to dip.
As a general rule, it’s good to adopt a buy and hold strategy with stocks. That means adding quality investments to your portfolio and hanging on to them for many years, during which time they may gain a lot of value. Holding stocks for many years also gives you time to recover from temporary declines in value.
Furthermore, while a diverse portfolio is a good thing, you don’t need to buy a new stock every week to make that happen. Instead, you can load up on 15 or so quality stocks that represent a range of market sectors. (If you want to own more stocks than that, go for it. But don’t feel compelled to keep investing in new companies all the time.)
Many brokerage accounts come with educational resources that can teach you how to become a better investor. It pays to read through them, especially if you’re just getting started. Or, to put it another way, if you make investing decisions without fully understanding what you’re doing, you could end up losing money.

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Some brokerage accounts offer trading on margin, which is borrowing money for investing. For example, if you have $2,000 in your brokerage account but want to purchase $4,000 worth of stocks, you may be eligible for a margin loan of $2,000 to make the investments you want.
The upside of trading on margin is the chance to score larger profits. But there’s a danger to trading on margin, which is why it isn’t suitable for a lot of investors. When you have an outstanding margin loan, your broker can issue a margin call that requires you to cover the money you borrowed. If you don’t have the cash to pay back that margin loan, you could be forced to sell off your current investments to satisfy it. That could mean selling stocks at a loss. Worse yet, as an investor, you can’t control the timing of a margin call, so trading on margin could put you in a worse financial position than when you started.
If you maintain a brokerage account, manage it with these things in mind. Avoiding these mistakes could help you steer clear of losses and grow the wealth you hope for.
Over the long term, there's been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns. Our experts have ranked and reviewed the top online stock brokers – simply click here to see the results and learn how to take advantage of the free trades and cash bonuses that our top-rated brokers are offering.
Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Many or all of the products here are from our partners. We may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
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