Important Investment Accounts you should know

Starting out as a beginner investor can be quite daunting but there are a few important investment accounts that you should know before you jump into investing. When I started investing I didn’t even know that there various types of investment accounts that one could choose to invest in and more than that, that you could invest in more than one type. I heard words like brokerage and investment firms being thrown around and to be honest this intimidated me because how could I contact an investment firm when I only had £50 to invest and sometimes even less.

Over the last few years, I have come to learn about the important investment accounts you should know about and which work in your favour and those which you should be mindful of before investing in them. I have learned about tax efficient ways to invest in the stock market and learned about what accounts will tax me now as opposed to in the future. Whilst it might seem like a lot, it truly isn’t, its about asking the right questions but I guess if you don’t know the questions you can’t exactly ask them. This is why I hope this post on important investment accounts you should know will be insightful to most of you especially if you are UK or US based.

Disclaimer – I am not a Financial advisor and this is not financial advise, please do your own research.

Important Investment Accounts you should know

Investing in the stock market is one of the best ways to make your money work for you thanks to the power of compound interest – which is your money earning interest on interest. Over the last seven years of investing, I have seen the power of compounding interest and wish I had started investing earlier than I did. The earlier you start investing the better chance your money has of growing exponentially and making you a great return. One thing to remember though is that the stock market is a risky place and whilst you can make great returns, you can also lose money this is why we say, ‘do your own research’ and determine the level or risk you want to undertake.

Another important thing to remember when it comes to investing in the stock market is that, only use the money that firstly you don’t mind losing (obviously no one wants to lose their money) and money that you won’t need in the next week, month or 5-6 years. If you want your money to truly grow and work for you, make sure you give it a good enough time in the stock market to be able to do that for you. I am a passive long term investor meaning, I have automated my investments into various accounts and I intend to leave my money in the market for the next 15-25 years depending on when I want to retire. Whilst I check in every now again on my stocks, I don’t panic when I see the dip instead if its good investment, I add even more during the dip.

Now that I have explained my strategy, lets get back to the important investment accounts you should know about as an investor especially a beginner investor.

Employer match – 401(k) vs Private Pension

The first investment account I want to share is the employer match type of account where you invest for the purpose of your pension when you retire. For the UK, we have pension plans with your employer whereby you contribute a certain amount and your employers matches your contributions. Personally I get 12% going to my retirement investment (this includes my employer match) but please note that this is different for every employer and it pays to sit down and discuss with your employer.

For the US, they have something similar called the 401(k) and of this they have two types traditional and ROTH (one is tax efficient and one tax deferred). The 401(k) like the UK pension plan is taken directly by your employer but you can decide what this money is invested in and at a defined age, you can withdraw the funds (depending on the type) you will either pay tax when you withdraw or no tax at all.

This type of investment account is so important for your future, many people (especially the young) opt out of this, meaning the losing free money which if your employer offers an employer match you are missing out on. Check with your employer and see what they offer and how you can benefit from it.

Individual Retirement Account (IRA) vs Individual Savings Account (ISA)

On both sides of the pond, each country has its own type of tax efficient accounts that you can use to either supplement your retirement invests or otherwise. I won’t speak about the IRA as I know more about the UK ISAs than the US IRAs but a quick google search will provide the information you need. For those in the UK, an individual savings account is a tax efficient account that allows you to invest ‘after-tax’ money (ie. you net income) unto £20,000 a year and will not be taxed. What is beautiful about this type of investment account is that every financial year, you can add £20k to your investments and you won’t get taxed until you sell your investments and take the money out.

Brokerage Account vs General investment account

A brokerage account is an investment account that allows you to buy and sell a variety of investments. Both the UK and the US offer different types of brokerage accounts but most are similar. In the UK, you are allowed only to fund one investment ISA in any financial year which means if you open another investment account, it will most likely be a general investment account (GIA). You can have as many brokerage accounts as you want to invest in various things from stocks and shares to crypto. I have several general investment accounts that I use for various types of investing and sharing how those are fairing on my YouTube account.

Remember, each brokerage firm that you use will have its own fees so its important to choose one that has lower fees on using their platform and lower fees when it comes too investing with or via them. I hope you found this post useful and let me know if your country what types of investment accounts you have.