Review: The Best Investment Accounts To Have
And which investment account is right for you?
|Written by Tom Yeung, CFA | CDFA|
Investment Advisor & Fund Manager, Jurnex Financial Advisors
You’ve known for years about the benefits of long-term investing. Perhaps you already have a retirement account with your employer or have built equity in your house. Both of these can provide income during your retirement years.
But when it comes to opening an investment account to invest on your own, it can be confusing to know where to start. What’s the best investment accounts for you to open?
If you want to learn more, you’ve come to the right place. In this article, we’ll first cover the definition of what an investment account does. Next, we’ll cover the five different types of investment accounts you can choose from. Finally, will discuss what are the best investment accounts for you.
What are investment accounts?
Investment accounts are accounts you can use to buy different financial products. While a bank account might only let you hold cash or certificates of deposit (CDs), investment accounts could let you hold stock, bonds, funds and more. These investments can generate returns for you in the form of dividends, or you can sell them for a profit later on.
Investment accounts are primarily used to help you grow your savings. Unlike depositing money in a bank, investing in stocks, bonds and funds can put your money to work for you. Profits generated from your investments can be used to buy even more investments, and so on.
Are investment accounts safe?
You might already know that all bank accounts at FDIC-member firms are protected up to $250,000.
The best investment accounts receive similar protections from the SIPC (Securities Investor Protection Corp). All accounts at SIPC-member firms are covered up to $500,000, which includes a $250,000 limit for cash. This protects investors from any assets that can go missing from customer accounts.
Also, virtually all major brokerages also buy supplemental insurance for loss protection. At Fidelity, for example, customer accounts are covered up to $1 billion via Lloyds of London.
Keep in mind this insurance doesn’t cover investment losses. But they will compensate you if anything were to happen to your brokerage firm.
How do you open an investment account?
Most brokers allow you to open an account quickly online. Once you’ve opened an account, you can fund the investment account transferring money from a checking or savings account.
Many brokerages also allow transfers of stocks and bonds. This can be advantageous if you want to open a new account, but don’t want to trigger capital gains taxes by selling any assets.
For those who prefer in-person interaction, some of the best investment firms will also help you open an account. All it takes is a visit to a local branch or a phone call to the right advisor.
What types of investment accounts are there?
There are many types of investment accounts. Which is right for you will depend on your investment goals, and whether you would prefer a do-it-yourself approach or want help with your investments.
1. Full service
For people with complex financial issues or want help managing their finances
Full-service investment accounts come with a personal advisor. These advisors can help you do everything, from opening your account to helping you pick investments and monitoring performance.
There are two types of full-service accounts.
Most commercial banks also run wealth management services. These are targeted at high net worth individuals and families since minimum investments usually start around $250,000. Many of them also provide ancillary services, such as concierge services.
Some of these full-service banks include:
II. Financial Advisors
Besides banks, there are also financial advisory firms that specialize in helping people plan and save. Minimums tend to be lower at $50,000, or even nonexistent. That’s because many financial advisors can charge by the hour, eliminating the need for a minimum investment amount.
If you want to learn how to choose the right financial advisor, click here to read our FREE guide.
2. Online Hybrid
For people who are comfortable investing by themselves, but want the option of advisor support as needed
Over the past decade, hybrid investment firms have gained popularity. These are firms that offer low-cost online trading but have real-life advisors you can contact. Many of these firms, such as Fidelity and Charles Schwab, also have physical offices you can walk in for in-person meetings.
Hybrid advisors combine the best of both worlds. Most of them have zero account minimums and low trading fees, usually less than $5 per trade. They also tend to have extensive online resources for investors, like our guide on buying stocks.
3. Low-Cost Online
For those who are very comfortable with investing and need minimal guidance
Many low-cost online brokers are also mobile-based. This gives you the option to trade stocks easily on your phone.
Some of these actually have zero commission fees, opting instead to be paid through earning interest on your cash deposits, or performing what’s known as “payment for order flow”: a legal, but controversial way for brokerages to make money. It involves selling your orders to high-speed traders. Your order may get executed at a price that’s slightly worse. These pennies can add up, so if you’re trading heavily, you may want to consider commission-based trading instead.
For those who trade frequently and want low-commissions
For the very active trader, the best investment account might be a trading platform instead.
These are platforms that allow you to trade with extremely low commissions, starting at just $0.01 per trade. Many of these are suitable for algorithmic or high-frequency traders. And some trading platforms also offer exotic investments, such as complex options, commodities and short-sales.
These investment accounts can also work for investors looking for extremely low fees. But keep in mind that most trading platforms don’t offer much support for those learning to invest.
For those who want to use their IRA to reduce taxes on investment
It’s easy to forget there’s more to investments than stocks, bonds, and funds. Most investment firms only offer these exchange-traded products to keep costs down.
If you want to invest your IRA in other investments, such as real estate, private businesses, or tax liens, you need to open an investment account with what’s known as a self-directed IRA custodian.
That’s because according to the IRS, you can’t technically “access” your retirement account until you reach age 59.5 or pay a 10% penalty on it. That’s why you might see statements from Vanguard or Fidelity about your 401(k). Those companies are custodians to the account. So when you invest your IRA in income-producing real estate, you aren’t technically “accessing” the funds. Instead, a self-directed IRA custodian would hold your assets until you reach the age you can withdraw the money penalty-free.
We highly recommend you consult an investment professional before opening a self-directed investment account to navigate the appropriate tax laws.
Which are the best investment accounts for you?
Now that we have covered the five different types of investment accounts, we need to understand which account is right for you.
If you want low costs…
If keeping costs down is the most important goal, you should consider either a hybrid investment account or online only. This option might require more front-end work on your part: not only do you need to know how to invest, you have to make sure you’re saving enough for retirement and other goals.
But once you have your investment plan in place, low-cost options can save you money in the long-run.
- Online hybrid advisors
- Online-only investment accounts
- Trading platforms
If you have a complex financial life…
For those with complex finances, it can make sense to hire a financial advisor and open an investment account at their firm. In fact, you don’t need much to get started. That’s because many investment advisors work on very reasonable fee-only hourly rates. Like great accountants, great financial advisors can be very worthwhile.
Financial advisors can help you discover things you might not have even considered. For example, if you set up a college savings plan for your kid that goes unused, you can actually transfer the remaining balance to yourself if you ever wanted to go back to school!
- Full-service advisors
- Financial advisors
Do you want help with investing?
If this feels like a lot of information, don’t worry. The good news is you don’t have to do it all alone. You can work with an investing professional who understands the importance of opening the right investment accounts to correctly manage your nest egg.
Want to learn more? Talk to an investing pro today.
Where to find more resources
If you’re looking to revamp your stock portfolio, there’s no better time than now. All it takes is a phone call.
That’s because I’ve helped invest client money for over a decade in the same old-fashioned way: seek out great companies in great industries that can be purchased at a discount to their fair value. Sounds too simple to be true? Give me a call today and I’ll show you that it’s still possible after all these years.
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