As part of the ‘My financial journey’ series, I’ll share with you what helped me choosing a brokerage account. When I started to research about investing money in the stock market, I quickly became overwhelmed. It happened because as a European citizen, I have access to very different products than the folks in the US. Taxes are complex and I knew it’s not going to be easy to find what I’m looking for. I love challenges, so I knew I will find a way. My mindset says that nothing is impossible and it’s not rocket science. Below are all the essentials I was taking into account when choosing a brokerage firm. We’ll talk about their importance, and what kind of obstacles I overcame during the process.
The main obstacles in front of me were as follow:
- Taxes as EU citizen investing in the US stock market
- Brokerage fees
- Brokerage security
- Fractional shares investing
- Usability and stability of the platform for investing
I found out there is a tax treaty between the US and our country. According to it if I own 10% or more of a company, my dividend taxes will be 5%. In all other cases, my taxes will be 10% of the dividend received. So, if I own 10% of Apple, I’ll have to pay only 5% of the dividend I receive annually. If I own 9% of it or less, my taxes on dividends will be 10%. That sounds fair and it is an acceptable tax rate.
I recently received the 1st dividend payment in my brokerage account. By accident, I found out that I was taxed 37% for this dividend. It appeared that the W-8BEN form which I thought my brokerage firm submits for me automatically isn’t submitted at all. So, I had to find out how to do that myself. I quickly found out that the brokerage has it semi-automated as a process. Yet it still waits for me to trigger it, so keep that in mind when you do your own research.
The fun starts here. Since there are lots of firms offering brokerage, choosing a brokerage with less fees should be easy, right? Well, I had to dig into the websites of all of the brokerages I could find within a Google search. That was until I found out that Investopedia has very deep and thorough brokerage firms reviews and on their website. I utilized this to it’s very maximum to make the right choice.
Since it’s our money, when choosing a brokerage firm we have to be certain it will keep them safe. This is security in case of firm default, hacking, or another type of unpleasant event. Here the Investopedia website helped me once again. It has so much info, that you would hardly miss any detail.
Fractional shares investing
That one is particularly important to me as a beginner investor. I’m not going to invest thousands of dollars immediately, but I’ll start with $100/month. Yet, some of the companies I want to invest in are having higher stock prices. That forces me to look up for fractional shares investing capability. While choosing a brokerage should be straightforward, I’m making it hard, I know. But let’s consider this: as beginner investors, we’re jumping in something we sometimes don’t completely understand. If we wait until we completely understand it, we’ll never start investing! I wanted to avoid that, so I spent some time thinking about all of these things.
Usability and stability of the platform
This one is pretty straightforward. Since I am going to manage my money using a software solution, it has to be stable and usable. The Investopedia website has saved me once again here. They analyze all platforms deeply and take into account details that I wouldn’t think of. Their analysis of platforms usability and reliability helped me a lot.
With this, the process of choosing a brokerage firm is completed. Or so I thought.
During the above research, I realized that I would have to transfer money to a foreign bank or institution. I haven’t done it before and it scared me a bit, but I knew it is manageable. I found out that as an EU citizen, there might be taxes when doing these kinds of transfers. A company from Litva called Paysera allows me to do the whole operation for free. This involves:
- Transfer money from my bank account to my Paysera account
- Exchange from local currency to Euro
- Transfer money to my brokerage account
It sounds like there shouldn’t be an issue here, right? During my initial research, it appeared lots of people are getting crazy taxes during this operation. As a result of the above operation, I end up with Euros in a US stock exchange. This requires me to use my brokerage as an exchange with normal brokerage rates. This is the final step, taking me from local currency to US dollars. The only cost I pay is the currency exchange rate.
This is why it’s important to always do your own research and do your best to adopt the mindset of a winner. Everything is possible, you just have to want it hard enough. My research took me more than 3 months, I had ups and downs but I knew there has to be a way. So, are you a quitter or a winner?