Investment accounts
An investment account is a special account that allows you to buy and sell investments. These investments can include stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Investment accounts differ from savings accounts in a few important ways. First, investment accounts are not FDIC-insured, which means the government doesn’t guarantee your money if the brokerage firm holding your account goes out of business. Second, the value of assets in an investment account can fluctuate, meaning you could lose money on your investment. However, investment accounts also have higher return potential than savings accounts.
There are two main types of investment accounts: taxable accounts and retirement accounts. Taxable accounts are accounts that are not tax-advantaged. This means that you have to pay tax on any capital gains you make from your investments. Retirement accounts, on the other hand, offer tax benefits. For example, contributions to traditional IRAs and 401(k)s are generally tax-deductible, and earnings in the account are tax-deferred until you withdraw the money in retirement.
When choosing an investment account, it is important to consider your investment goals, risk tolerance and time horizon. Your investment goals are what you hope to achieve from your investments. For example, you might be saving for retirement, a child’s education, or a down payment on a home. Your risk tolerance is how much risk you are comfortable taking with your investments. Some investments are considered riskier than others. Your time horizon is how long you intend to invest your money. If you are investing for the long term, you can afford to take more risk than if you are investing for the short term.
