Investment account

Posted by Cynthia Smith on March 24th, 2021

An investment account is held at such financial facilities as banks, brokerage houses or even insurance companies. The main purpose of this account is preservation and capital growth as well as fixed income gains through long term deposits in the asset portfolio.

Generally, 'investing' signifies a proactive use of assets in a very broad definition – such as patents, trademarks, rare wines or gold coins, as well as small businesses, real estate and antiques. In this respect investment account holds less physical assets: cash, stocks, bonds and mutual funds. Meanwhile, the fundamental aim of the investment remains unchanged - to buy the asset and keep it long term and sell it at some point in the future, when the investment value is more favourable. Depending on the asset that you have decided to invest in, you must evaluate your investment as a long term process as it is required to wait while the certain object grows in its value.

Functions of investment account

Before opening an investment account, you should evaluate whether this kind of financial service is the most suitable for your risk/return or not. Moreover, liquidity preferences embody your goal. Investment accounts are usually operated with long term objectives. Traditionally, long term is considered to be 7 years or more, but this number should not be the main determinant while choosing whether or not to open an investment account. This bank service is frequently used when a certain event is going to take place in your life, which will require bigger amount of income, such as sending your child to college, buying a house or facing a retirement.

As one of the main determinants of investment account is its long term nature, you should be ready to face another attribute of it – liquidity. Any financial instrument has less liquidity in comparison to cash in your checking or savings account. In addition, this type of deposit is typically charged with higher transaction costs, in case you want to access the cash earlier than at certain point of time defined by the agreement between you and the financial facility.

Types of investment accounts

If you have decided to open an investment account, the next step is to find a bank or other financial institution that can offer you the most suitable type of investment account regarding the costs, risk level and other components. There are various kinds of accounts designed for different needs and wishes of investor, but not all banks offer such services.

Brokerage account

This account is managed by the investor himself. Usually, after depositing cash on this account, you can use the funds to purchase different financial instruments or other types of investments. This account involves a commission paid to your broker for executing your purchase and sell orders. If you feel uncertainty regarding your investing skills, you may use full service brokerage account, which would also include investment advices.

Retirement account

This account is designed for long term continuous deposits over the years of employment, which results in higher income during retirement in addition to the state pension (if applicable in your country – ask us). In several countries, deposits in the retirement account are not tax applicable.

Custodial / guardian account

These accounts are designed for investors, who want to save funds for their children or other person. This includes savings made for a child’s education.

Specialty account

This type of account usually includes testamentary or non-testamentary trust accounts. In case of a non-testamentary trust account financial instruments are registered on behalf of the trust, while managed by a trustee. Meanwhile, a testamentary trust is opened through the testimony of a deceased person.

Business account

Business account works similarly as brokerage account, while the client is a business instead of a private person.