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Some of the Personal Finance content I will be writing about in this series of articles may be obvious or rudimentary to many of my readers but it also may be of great value to young people you may know. Please share this information with those you believe will best benefit from it.
There are many types of “Investment Accounts” but the main one you need to be familiar with is the Brokerage Account. You can set up a Brokerage Account online, on your own, or with a Broker, Registered Investment Advisor or a Certified Financial Planner.
The purpose of a Brokerage Account is to give you the ability to invest your savings in stocks, bonds, mutual funds, exchange traded funds, index funds and many other more sophisticated types of investments (i.e. Options Trading).
The goal of making investments in a Brokerage Account is to grow your wealth over time. Many of the Saver-Investor Self-Made Millionaires in my Rich Habits Study consistently saved and consistently invested those savings in Brokerage Accounts.
If you purchase stock, some companies pay dividends and allow you to reinvest those dividends into purchasing additional shares of the company’s stock. Once of the Self-Made Millionaires in my Study did just that and the $700,000 he invested over time, grew to $4.3 million after forty years.
There are all sorts of categories, or segments, of stock: Growth Stocks, Dividend Stocks, International Stocks, Technology Stocks, Pharmaceutical Stocks, Large-Cap Stocks (Large Capitalization means there are many millions of shares outstanding), Mid-Cap Stocks, Small-Cap Stocks, and so on.
Mutual Funds aggregate individual stocks for a specific objective. There are currently over 140,000 Mutual Funds (2023) you can invest in around the world. If, for example, a single Mutual Fund owns Stock in 100 companies, when you buy one unit of that mutual fund, you are essentially buying a fractional share of 100 company stocks.
Every Mutual Fund has a specific objective or investment goal. For example, you could invest in a Mid-Cap Mutual Fund whose goal is to obtain a 7% annual return on investment.
Because there are so many Mutual Funds, you will need to do your homework or seek out the services of a financial advisor.
Exchange Traded Funds (ETFs) are relatively new and while similar to a Mutual Fund, what sets them apart is their low fees, when compared to a Mutual Fund and their ability to trade during the trading day, just like individual stocks.
Mutual Funds fees can range from 1-5% and only settle trades at the end of the day. Comparatively, ETF fees range between .1% – 1% and you can trade an ETF throughout the trading day.
ETFs are grouped into four basic categories: Broad-Based ETFs, Fixed Income ETFs, International ETFs and Sector ETFs.
Broad-Based ETFs follow specific index styles, such as Growth Indexes, Value Indexes, Large-Cap Indexes, Mid-Cap Indexes and Small-Cap Indexes.
Fixed Income ETFs track indexes for corporate and Treasury Bonds.
International ETFs track indexes for foreign countries as well as international regions (i.e. Asia).
Sector ETFs track indexes for specific industries, such as health care.
Below is a list of just about every possible Investment vehicle there is:
- Real Estate Investments, such as: Residential and Commercial Rental Properties, Principal Residence, Vacation Residence/Rentals, Undeveloped Land in Desirable Locations (i.e. Beach Area, Ski Resort Area), Fixer Upper Real Property Investments, Real Estate Investment Trusts, Triple Net Lease Properties and Tennant-In-Common Properties.
- Permanent Life Insurance Products that build Cash Surrender Value, such as Whole Life Insurance.
- Index Funds
- Bonds
- Limited Partnerships
- Fixed Annuities
- Variable Annuities
- US Treasuries
- CDs
- Money Market Accounts
- Derivatives/Hedging Instruments, such as Call and Put Options
- Businesses and Partnerships
- Collectibles such as Art, Memorabilia, Cars, Antiques, Diamonds, Jewelry, Wine
- Commodities such as Oil and Gas, Gold, Silver, Livestock, Futures
- Hedge Funds
- Private Equity Funds
- Managed Wealth Accounts
- Crypto Currencies, such as Bitcoin
- Venture Capital Funds
- Foreign Currencies
- Start-Up Businesses
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, Effort-Less Wealth, Change Your Habits Change Your Life, Rich Habits Poor Habits and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”
