The Wheres and Whats of Investing

When you’re ready to invest for your long term goals you’ll need to choose where to do that. We don’t mean what to invest in , that’s a different step. Where you invest matters a lot too. There are special accounts for different purposes that can really make a difference in how much money you’ll end up with when you need it. Here are some of the most common places you can invest:

A Brokerage Account – this is the plain, no-frills, no tax advantages account for buying and selling investments. You can open one at almost any large financial institution (they’ll be happy to help you set one up.)

401(k) – your workplace retirement account is, no surprise, a great place to invest for retirement. Contributions are pre-tax and grow tax-free. Some employers offer a match on contributions up to a point.

IRA – a retirement account for individuals, not affiliated with your employer. Either contributions (traditional IRA) or withdrawals in retirement (Roth IRA) are tax exempt and like a 401(k) the growth is tax free as well. The contribution limits are lower than a 401(k) and phase out at certain income levels but this is a good option for investing for retirement if you don’t have access to a 401(k) or want to supplement it.

529 Plan – a vehicle for saving and investing for college. Many people open 529s for their children as a more tax efficient way to put away money for college. Contributions aren’t tax deductible but the investments grow tax free and qualified withdrawals (ones that are used for education expenses) are tax free.

HSA – If you have a health savings account this is sneakily one of the best options for investing available. They have a triple tax advantage; contributions are tax deductible, the investments grow tax-free, and qualified withdrawals for medical expenses aren’t taxed either!

There are other types of investment accounts but these are the most commonly available to most people.

Now that you know where you’re investing, what about what to invest in? Some of the most commonly available options are:

Stocks – Shares in a single company like Apple, Amazon, or Exxon.

Bonds – Loans from an investor to a company, municipality, etc. Commonly referred to as “Fixed Income” since most earn a fixed rate of return.

Mutual Funds – Professionally managed investment funds that invest in multiple stocks, bonds, etc. Investors buy and sell shares in the funds directly to gain access to multiple investments in one purchase. Mutual funds usually have a specific goal or mandate they are managed to try and achieve.

Exchange Traded Funds (ETF) – Similar to Mutual Funds but traded on a public exchange at market prices.

Index Funds – a specific type of ETF or Mutual Fund designed to allow you to invest in an entire stock index (like the S&P 500, or Dow Jones Industrial Average) by buying a single security.

Other: Real Estate, Commodities, Art, Etc. If something potentially gains value over time and has a market for buying and selling it can be an investment.

These are only some of the investment options available to you. If you’ve got questions about these, or any of the other investment choices out there, ask a BrightDime coach for help!