If you’re based in the USA and considering starting out your investing journey then we’ve got some good news for you: there is so much choice! Now we promised some good news, but there is also some bad news: there might just be too much choice!
Sifting through the various options and landing upon the best platform for you is no easy feat. So before we start to have a look at some of the options available, let’s consider a few of the tax implications and the tips and tricks you can use in your investing to make things as efficient as possible.
There are two types in the USA: short-term capital gains (for investments held for one year or less) and long-term capital gains (for investments held for more than one year). Long-term capital gains are generally taxed at lower rates.
It's important to be aware of these tax implications and consider how long you hold on to your investments before you decide to sell.
Tax advantaged accounts
Next, try to utilise tax-advantaged accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s. Contributions to traditional IRAs and 401(k)s may be tax-deductible, potentially lowering your taxable income in the year of contribution.
Additionally, earnings within these accounts grow tax-deferred, meaning you won't pay taxes on the gains until you withdraw the money in retirement. This is at the set age of 59 ½ but you might be able to withdraw earlier if you’re prepared to pay a penalty of 10%.
Thirdly, be mindful of dividend taxes. Dividends received from stocks are generally subject to taxation. Qualified dividends are taxed at long-term capital gains rates, while non-qualified dividends are taxed as ordinary income. It's important to understand the tax implications of the dividends your investments generate.
Last up, it can be worth considering offsetting any losses you incur in investing, which can be known as tax-loss harvesting. This involves selling investments that have experienced a loss to offset capital gains and potentially reduce your tax liability.
Note! Just be aware of the "wash-sale rule," which prohibits claiming a loss if you repurchase a substantially identical investment within 30 days before or after the sale.
Of course, each and every one of these will need a personalised approach, so make sure that if there’s any confusion you consult a relevant tax adviser who can help you work out what is best for you.
Only you can know what the best platform is for you.
10 trading platforms in the USA
There are dozens of platforms available for buying and investing in stocks that offer a wide range of different features. This can be from the investments that they offer, whether they manage the investment selection for you and how user friendly their interface is.
While it's important to conduct your own research and consider your individual needs, we’ve compiled a list of 10 popular platforms that are user-friendly and offer a range of features.
The order of the list does not imply which are our favourites and there are other platforms out there that may be perfect for you yet not included, so please use this as guidance and a starting point for research rather than a definitive list.
Robinhood is known for its simple and intuitive interface, making it popular among beginners. It offers commission-free trading and a wide range of investment options.
Acorns is an investment platform that specialises in micro-investing. This means that the investment choices are very low cost, so even those with a relatively small budget can get going. It also allows users to invest spare change from everyday purchases into a diversified portfolio. Win win!
Stash offers a user-friendly platform with fractional investing, allowing beginners to also start with small amounts of money. They also provide educational content and personalised investment recommendations.
TD Ameritrade is a well-established brokerage platform that provides a variety of investment options. It offers a comprehensive set of research tools and educational resources. This of course comes with a slightly higher cost than some of the other platforms mentioned above, but the reputation is well deserved.
Fidelity is a trusted platform that offers a wide range of investment products and services. They provide educational resources, research tools, and have a user-friendly interface. One of the most widely used platforms not just in the USA but also globally it does come with a slightly higher cost than others but a wide range of opportunities.
ETRADE offers a beginner-friendly platform with access to a variety of investment options, including stocks, bonds, ETFs and mutual funds. They provide educational resources, research tools, and have a mobile app for easy access. Having recently merged with the investment bank Morgan Stanley, they have a big name backing their reputation too.
Charles Schwab is a reputable platform known for its low fees and a wide range of investment options. They provide excellent customer service and educational resources as well as many options for US residents who move overseas.
Ally Invest is a user-friendly platform that offers a variety of investment options. They boast some of the lowest fees in the industry as well as a user-friendly interface, and additional educational resources. Having been around for over 100 years, they’re by no means the new kid on the block and have a lot going for them!
Betterment is a robo-advisor platform which means that they provide automated investing services. They offer goal-based investing and provide personalised portfolio recommendations which can help to fine tune their broader investment choices so that you feel you at least have some control over your investments.
Wealthfront is another popular robo-advisor platform that provides automated investing services. This means that you don’t have the flexibility to choose your own funds or stocks, which might not suit all. They do however offer features that can really help with some of the administration behind investing, such as tax-loss harvesting.
So there you have it, an overview of some of the platforms you can use to kick start your investing journey as a resident in the USA. All platforms that are registered and regulated by the SEC in the USA will also have up to $250,000 of protection should they go bust, so don’t feel you need to split between lots. The beauty of the investing journey is that everyone’s will be different, so don’t be afraid to go against the grain, and remember that you can always change at some point down the road if you need.