Wise investments can be life-changing, as they allow individuals to grow their money without much day-to-day effort. There is risk involved, but financial planning and advice from a professional mitigate much of that danger and put you on the right track.
The investment process starts by selecting the correct account type to grow that money, which is often based on the overall goal. Investment accounts hold stocks, bonds, mutual funds, exchange-traded funds (ETFs), and other investments that grow your wealth based on their performance. You can buy and sell assets within the account, potentially making a profit when the security increases in value.
The idea behind these accounts is that you can use your disposable income to improve your future financial picture. There are no guarantees your money will grow with these accounts, but the benefits are nearly endless if you make successful investments. This guide will take you through the various account types available to you and go over which one is your best bet for reaching your goals.
3 Reasons for Opening an Investment Account
There’s an excellent chance your money will grow after opening your account if you put in the work to find securities that progress in value. You probably have a goal in mind if you’re thinking about opening a new account, so you’ll select your account with that aim in mind. Here are a few common goals for investors:
1. Plan for Retirement
One common reason to initiate an investment account is to begin planning for retirement well before reaching the necessary age. It’s essential to have money put away for when you no longer can or wish to work, and an investment account can turn that dream into a reality. Many retirement accounts provide tax breaks when you contribute, making it easier to save.
2. Save for Education
Putting money aside for a college education is important because of increasing tuition costs and the ultra-competitive job market, which often requires a degree. An education investment account allows you to grow your savings over time and use these earnings to pay for school. It’s also possible to create an education savings account for your children so they have the money available when they’re ready for college.
3. Grow Your Earnings
You could always just leave your money in your checking account, but investing this money instead gets it working to your benefit. Creating a monthly budget and investing the rest of your income can put you on the path to financial freedom at a younger age, as long as you invest wisely. You can also use the money for significant purchases or emergencies because, depending on the account you choose, this money is usually available to you at all times.
Everyone has their reasons for investing their money in the market. You’ll have to decide which type of investment account to open, however, because it all depends on your situation and financial goals.
4 Investment Account Types You Should Learn About
Coming up with financial goals is only half the battle, because the next step is determining which type of investment account will help you reach them. Risks, tax considerations, and rules vary based on the account type you choose to open. Here are the four main types:
1. Brokerage Accounts
A standard brokerage account is what you use to invest in stocks, bonds, mutual funds, and ETFs as an individual or through a joint account with a spouse. The great thing about these accounts is that you can contribute as much or as little as you wish, and they have unlimited income potential. These investments can be risky, however, if a stock crashes, plus you’re responsible for paying taxes on your capital gains whenever you sell an asset after it increases in value.
2. Retirement Accounts
A few different investment account types fall into the retirement category, including traditional IRAs and Roth IRAs. The difference between the two accounts is that you pay tax on withdrawals with a conventional IRA and on contributions with a Roth IRA. It’s also worth noting that there are maximum annual contribution limits for both account types, and penalties for taking money before you reach retirement age, with a traditional IRA.
3. Education Savings Plans
Two of the most popular ways to put money away for school are 529 plans and Coverdell education savings accounts. It’s important to understand that 529 savings plans don’t have contribution limits and vary by state, but you can shop around for the best option and invest in any state’s program that you wish. Coverdell education savings accounts are operated by the federal government and limit how much you can invest every year.
4. Investments for Kids
Putting money away for your children is possible through custodial brokerage and IRA accounts. Although your kids must be 18 or 21, depending on the state, to operate an investment account, these options allow you to start them on the path to financial freedom at a young age. The great thing about these accounts is that the money can go toward anything your children wish to buy when they withdraw, unlike with an education account.
Selecting the investment account types that best suit your needs is crucial because it puts you on the right path for your future. You’ll then have to start looking at investment options that will provide the best return in a timeline you can handle.
Speak With an Investment Account Expert
Investment accounts and financial planning are complicated topics, especially for anyone just starting. Bogart Wealth has a skilled team of financial professionals who can help you investigate your best options and come up with methods of reaching your financial goals.
Bogart Wealth offers financial planning, retirement planning, and investment management services to investors in the McLean, VA, and Houston, TX, areas. We can help you make sense of the various investment account types, giving you a better chance of reaching your goals. Be sure to contact us for independent financial advice you can trust.