Should You Open a Brokerage Account if You Don't Know How to Pick Stocks?

Opening a brokerage account allows you to start putting money into the stock market. This is generally a good idea if you want to earn reasonable returns. Putting your money in the market is going to give you the potential to earn a much higher rate of return than a high-yield savings account or similar investments.

But, what if you don't know how to pick stocks to invest in? Does it still make sense for you to open a brokerage account or will you be setting yourself up for failure?

Knowing how to pick stocks isn't necessary to be a successful investor

Knowing how to pick individual stocks can definitely help you to maximize the returns you earn. But it is absolutely not a prerequisite for being a successful investor. In fact, many people who will make the most money in the market will never ever buy individual stock shares in a single company.

That's because index fund investing can actually have better outcomes for the vast majority of people. Index funds are designed to track specific financial indexes and mimic the performance of those indexes. For example, you could buy an S&P 500 index fund which has the goal of tracking the performance of the S&P 500 financial index. That is made up of around 500 large U.S. companies from a wide array of different fields.

When you buy an index fund, you get a small ownership stake in all of the companies that make up the index. You get instant diversification. You also take on minimal risk if you pick the right fund. For example, the S&P 500 has historically produced average annual returns of around 10% (before inflation). Many people who are skilled investors can't get those kinds of returns on a consistent basis.

In fact, one of the greatest investors of all time -- Warren Buffett -- recommends that most investors just put 90% of their investment money into an S&P 500 fund and the rest into short-term government bonds.

So, even if you don't know how to pick stocks, you should open a brokerage account and find a low-cost S&P 500 index fund to buy. If you consistently put money into it and leave your money alone over time, you stand a very good chance of building wealth. Just $250 monthly invested in a fund earning 10% average annual returns could turn into close to $500,000 over 30 years.

There's no reason to wait to open a brokerage account and get your money working for you

If you put off opening a brokerage account because you don't know how to pick stocks, you may be waiting forever to get started investing. That's especially true if you aren't passionate and motivated about developing an investment strategy.

Rather than waiting until you're a stock expert -- and then perhaps seeing your portfolio perform poorly if you aren't as much of an expert as you thought -- get your brokerage account open today and start investing in an index fund with a proven track record. You may be surprised by how fast your money grows.