Introduction to Investment Accounts


In this section, we go into details about various types of investment accounts. All investors need to know these options.

This is not to say advisors are crooks, but some are. There are advisors that aren’t competent enough to add enough value to compensate for their fees. What’s worse, few advisors, unfortunately, are outright crooks. An example is Bernie Madoff, currently serving 100+ years sentence at a federal prison.

The point here is: Be careful who you’re dealing with (stick with reputable names such as major fund families), and don’t let a single person or company manage all your wealth. Don’t open an account when some ”full-service” broker calls. Instead, ask to be put on a “do not call list”. Diversify not only when it comes to assets, but also when it comes to financial advisors.

While many financial institutions go out of their way to show how good and convenient it is to keep one’s investments consolidated in one place, there is exposure risk. The funds may be protected in the case a financial institution goes down (which doesn’t mean they’re protected from market fluctuations), but this still may cause great inconvenience and distress as it takes time to recover the money invested.

The same principle applies to banks. It’s advised not to keep all the savings at one bank in the case of default or issues with account access.

  


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There are many types of investment accounts- from simple to very complicated, and from good to bad and worse. This section will give you a comparison of brokerage accounts.


A simple way to invest is by opening an account directly with a mutual or other investment fund. This can be self- directed (where investor chooses what to buy, hold, and sell) or managed (by a financial advisor or planner).

The benefits of investing directly with a mutual fund include avoidance of some transaction costs and an ability to set up automatic investments (specified amount of money gets invested every month). Mutual fund companies offer several options such as individual accounts, retirement accounts, and college plans.

The drawback includes limited choices that come from one fund family. But, this is changing. For example, Vanguard Group offers access to Vanguard Funds, ETFs, stocks, bonds, annuities, and Certificates of Deposit (CDs). Effectively, it’s an offering of Vanguard products together with a brokerage account enabling multiple investment choices.

When considering an option of this kind, it is necessary to take a look at transaction costs. So, while buying fund’s own products the fee may be low or none, but the cost of buying outside products can be higher than with a regular brokerage account.


Another thing is that this kind of an offering often comes with the services of a financial advisor. While there are benefits to that, advisors cost money (after all, they need to make enough to cover their salaries, other expenses, and make a profit for their boss). And, quite often, financial advisors are biased toward certain products (especially for commission or marketing purposes).

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There are many investment account types to choose from

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