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| ''New Investor's Complete Guide to Everyone How to Get Started with Brokers, Brokerage Accounts, and Brokerage Firms '' ------------------ ''What Is a Brokerage Account? How Brokerage Accounts Work and The Types of Investments They Can Hold'' |
Brokerage Account:
What Is a Brokerage Account?
Understanding the Basic...
A brokerage account is a type of taxable account
that you open with a stock brokerage firm.
You deposit cash into this account either by writing
a check or linking it to a checking or savings
account at your bank.
Once this cash is deposited, you can use the
money to acquire many different types of
investments. In exchange for executing your buy
and sell orders, you typically pay the stock broker a
commission.
What Are Some Types of
Investments a Brokerage
Account Can Hold?
A brokerage account can hold many different types
of investments including, but not necessarily
limited to, the following:
• Common stocks, which represent ownership
stakes in businesses.
• Preferred stocks, which usually
don't get a cut of a firm's profit but, instead, tend to
pay higher than average dividends.
• Bonds, including Sovereign bonds such
as U.S. Treasury bills, bonds, and notes, corporate
bonds, tax-free municipal bonds, and agency bonds.
• Real Estate Investment
Trusts, or REITs, which represent pools of real
estate related assets including some specialty
types, such as hotel REITs, which focus on owning
and operating hotels.
• Stock options and other
derivatives, which can include call options and
put options that give you the right or obligation to
buy or sell a given security at a given price before
an expiration date.
• Money markets and certificates
of deposit, which represent either ownership
in pools of highly liquid mutual funds that hold cash
and fixed income investments or loans you make to
a bank in exchange for a fixed rate of interest.
• Mutual funds, which are pooled
investment portfolios owned by many smaller
investors who buy shares in the portfolio or trust
that owns the portfolio.
Instead of trading throughout the day the way other
assets do, orders buy and sell orders are put in at
the end of the day all at once. Mutual funds include
index funds.
• Exchange traded funds, or ETFs,
which are mutual funds, including index funds, that
trade like stocks.
• Master Limited Partnerships, or
MLPs, which are highly complex partnerships with
certain tax advantages to certain types of investors.
Some brokerage accounts will allow you to hold
membership units in a limited liability company or
limited partnership units in a limited partnership,
typically tied to investing in a hedge fund, which
can be difficult for new or poorer investors.
However, the broker is likely to charge a not-
insignificant fee for having to deal with the trouble
of non-standard securities, as they are sometimes
known.
What Is a Brokerage Account?
Understanding the Basic...
A brokerage account is a type of taxable account
that you open with a stock brokerage firm.
You deposit cash into this account either by writing
a check or linking it to a checking or savings
account at your bank.
Once this cash is deposited, you can use the
money to acquire many different types of
investments. In exchange for executing your buy
and sell orders, you typically pay the stock broker a
commission.
What Are Some Types of
Investments a Brokerage
Account Can Hold?
A brokerage account can hold many different types
of investments including, but not necessarily
limited to, the following:
• Common stocks, which represent ownership
stakes in businesses.
• Preferred stocks, which usually
don't get a cut of a firm's profit but, instead, tend to
pay higher than average dividends.
• Bonds, including Sovereign bonds such
as U.S. Treasury bills, bonds, and notes, corporate
bonds, tax-free municipal bonds, and agency bonds.
• Real Estate Investment
Trusts, or REITs, which represent pools of real
estate related assets including some specialty
types, such as hotel REITs, which focus on owning
and operating hotels.
• Stock options and other
derivatives, which can include call options and
put options that give you the right or obligation to
buy or sell a given security at a given price before
an expiration date.
• Money markets and certificates
of deposit, which represent either ownership
in pools of highly liquid mutual funds that hold cash
and fixed income investments or loans you make to
a bank in exchange for a fixed rate of interest.
• Mutual funds, which are pooled
investment portfolios owned by many smaller
investors who buy shares in the portfolio or trust
that owns the portfolio.
Instead of trading throughout the day the way other
assets do, orders buy and sell orders are put in at
the end of the day all at once. Mutual funds include
index funds.
• Exchange traded funds, or ETFs,
which are mutual funds, including index funds, that
trade like stocks.
• Master Limited Partnerships, or
MLPs, which are highly complex partnerships with
certain tax advantages to certain types of investors.
Some brokerage accounts will allow you to hold
membership units in a limited liability company or
limited partnership units in a limited partnership,
typically tied to investing in a hedge fund, which
can be difficult for new or poorer investors.
However, the broker is likely to charge a not-
insignificant fee for having to deal with the trouble
of non-standard securities, as they are sometimes
known.
''The New Investor's
Complete Guide to
Brokers
How to Get Started with
Brokers, Brokerage
Accounts, and Brokerage
Firms''
The broker and brokerage firm are the two primary
relationships you will have when you begin your
journey to investing, whether it's a stock broker,
commodities broker, future broker, bond broker, or
an all purpose brokerage firm.
This broker guide for new investors explains some of
the things you need to look for when selecting a
brokerage firm, fees to avoid, an explanation of asset
management accounts, and more. It's part of our
guide to investing in stocks.
-----------
Whenever you buy or sell an
investment through your brokerage
account, you are going to receive a special
document called a trade confirmation from your stock
broker. There are certain things you need to check
on each and every trade confirmation you receive or
you could end up losing a lot of money
----------
Now that you know the basics
of how brokerage accounts work
and why trade confirmations are important, it's time
for you to set out to find your own, personal stock
broker.
There are two types of stock brokers in the world -
full-service stock brokers and discount stock
brokers. They each have pros and cons. How do you
know which one is right for you?
---------------
With their mahogany-paneled walls, gourmet coffee,
and tailored stock recommendations, full-service
stock brokers can cost a lot of money through higher
fees, service charges, and commissions. But, in some
cases, their research and planning help is worth
every penny.
Just what services do full-service brokers and
full-service brokerage firms offer?
Complete Guide to
Brokers
How to Get Started with
Brokers, Brokerage
Accounts, and Brokerage
Firms''
The broker and brokerage firm are the two primary
relationships you will have when you begin your
journey to investing, whether it's a stock broker,
commodities broker, future broker, bond broker, or
an all purpose brokerage firm.
This broker guide for new investors explains some of
the things you need to look for when selecting a
brokerage firm, fees to avoid, an explanation of asset
management accounts, and more. It's part of our
guide to investing in stocks.
-----------
Whenever you buy or sell an
investment through your brokerage
account, you are going to receive a special
document called a trade confirmation from your stock
broker. There are certain things you need to check
on each and every trade confirmation you receive or
you could end up losing a lot of money
----------
Now that you know the basics
of how brokerage accounts work
and why trade confirmations are important, it's time
for you to set out to find your own, personal stock
broker.
There are two types of stock brokers in the world -
full-service stock brokers and discount stock
brokers. They each have pros and cons. How do you
know which one is right for you?
---------------
With their mahogany-paneled walls, gourmet coffee,
and tailored stock recommendations, full-service
stock brokers can cost a lot of money through higher
fees, service charges, and commissions. But, in some
cases, their research and planning help is worth
every penny.
Just what services do full-service brokers and
full-service brokerage firms offer?
Managed account:
What is a Managed
Account?
In banking, a managed account is a fee-based
investment management product for high-net-worth
individuals.
The main appeal for wealthy individuals is the access
to professional money managers, a high degree of
customization and greater tax efficiencies in a fee-
based product.
'Managed Account'
A managed account is an investment account that is
owned by an individual investor and overseen by a
hired professional money manager.
In contrast to mutual funds, which are professionally
managed on behalf of many mutual-fund holders,
managed accounts are personalized investment
portfolios tailored to the specific needs of the
account holder. With a mutual fund, the fund company
hires a money manager who looks after investments
in the fund's portfolio and may alter the fund's
holdings in accordance with its objectives.
'Managed Account'
A managed account may hold
assets, cash or title to property for the benefit of
the client. The manager may buy and sell assets
without the client’s prior approval, as long as the
manager acts according to the client’s objectives.
Because a managed account involves fiduciary duty,
the manager must act in the best interest of the
client, or potentially face civil or criminal penalties.
----------------
A managed account provides access to investment
professionals who select and monitor investments
based on your investing goals and needs.
What is a Managed
Account?
In banking, a managed account is a fee-based
investment management product for high-net-worth
individuals.
The main appeal for wealthy individuals is the access
to professional money managers, a high degree of
customization and greater tax efficiencies in a fee-
based product.
'Managed Account'
A managed account is an investment account that is
owned by an individual investor and overseen by a
hired professional money manager.
In contrast to mutual funds, which are professionally
managed on behalf of many mutual-fund holders,
managed accounts are personalized investment
portfolios tailored to the specific needs of the
account holder. With a mutual fund, the fund company
hires a money manager who looks after investments
in the fund's portfolio and may alter the fund's
holdings in accordance with its objectives.
'Managed Account'
A managed account may hold
assets, cash or title to property for the benefit of
the client. The manager may buy and sell assets
without the client’s prior approval, as long as the
manager acts according to the client’s objectives.
Because a managed account involves fiduciary duty,
the manager must act in the best interest of the
client, or potentially face civil or criminal penalties.
----------------
A managed account provides access to investment
professionals who select and monitor investments
based on your investing goals and needs.
Why managed accounts?
Managed accounts use an asset-based fee
structure that allows investors to receive
guidance and implement an ongoing personalized
investment strategy without incurring individual
trading costs at the time of purchase or sale.
You can create your personal portfolio using a
broad range of investment choices and
professional money managers as part of an
investment advisory asset-based service.
Be involved, or delegate account management
Your financial advisor can recommend one or
more managed accounts for your taxable and
retirement assets based on your goals and needs.
Whichever program you choose, your financial
advisor will track your overall investment portfolio
and work with you to make sure it remains aligned
with your goals.
--------------------
Managed accounts use an asset-based fee
structure that allows investors to receive
guidance and implement an ongoing personalized
investment strategy without incurring individual
trading costs at the time of purchase or sale.
You can create your personal portfolio using a
broad range of investment choices and
professional money managers as part of an
investment advisory asset-based service.
Be involved, or delegate account management
Your financial advisor can recommend one or
more managed accounts for your taxable and
retirement assets based on your goals and needs.
Whichever program you choose, your financial
advisor will track your overall investment portfolio
and work with you to make sure it remains aligned
with your goals.
--------------------
''How to Find the
Best Managed
Accounts
Some managed
account structures
are great, others not
so much''
A managed account
(sometimes called a wrap
account) is a type of investment management
service that packages together a group of
investments for you. Some managed accounts offer
a good service for the price; others have high fees
and tax inefficiencies.
The challenge is figuring out which is which.
Types of Managed
Accounts
An investment advisor may manage a portfolio of
stocks, which is often referred to as a "separately
managed account".
An investment advisor may also manage a portfolio
of mutual funds; if this mutual fund management
service also covers the brokerage fee costs it is
called a "wrap account".
A financial advisor may recommend you invest your
money in both separately managed accounts and
wrap accounts, in which case you may be paying
several layers of investment fees.
Finding the Best
Managed Accounts
Kind of like doing your taxes, you can do it yourself,
or pay someone to do it for you. What you are paying
for is someone who will build an appropriate
allocation, choose low-cost funds to fill in that
allocation, monitor it, rebalance when needed, and
report on the results so that you know your
percentage return each year.
You need to decide if you are a do-it-yourself
person or if you prefer to delegate.
Professionals tend to follow a more
disciplined process - so that in itself can
lead to better results, but if you were able to follow
that disciplined process on your own, then you
would achieve the same results.
Hiring someone does not mean they will achieve
higher returns than you would on your own. It means
you are hiring them to follow a disciplined and
consistent investment process and build an
appropriate portfolio for you.
If you want to delegate, these guidelines will help
you find the best-managed account:
• Pay attention to total costs. Ask for
an estimate of all trading costs, fund fees, and
advisor fees. Make sure total fees are 2% or less a
year.
• If you have money in after-tax accounts as well
as retirement accounts, find advisors who manage
for after-tax returns.
• If you have money in many different types of
accounts, find an advisor or managed account
platform that will manage your assets across a
household, not at an individual account level.
• If you want an online solution to automatically
manage your money, check out some of the top
roboadvisors.
Best Managed
Accounts
Some managed
account structures
are great, others not
so much''
A managed account
(sometimes called a wrap
account) is a type of investment management
service that packages together a group of
investments for you. Some managed accounts offer
a good service for the price; others have high fees
and tax inefficiencies.
The challenge is figuring out which is which.
Types of Managed
Accounts
An investment advisor may manage a portfolio of
stocks, which is often referred to as a "separately
managed account".
An investment advisor may also manage a portfolio
of mutual funds; if this mutual fund management
service also covers the brokerage fee costs it is
called a "wrap account".
A financial advisor may recommend you invest your
money in both separately managed accounts and
wrap accounts, in which case you may be paying
several layers of investment fees.
Finding the Best
Managed Accounts
Kind of like doing your taxes, you can do it yourself,
or pay someone to do it for you. What you are paying
for is someone who will build an appropriate
allocation, choose low-cost funds to fill in that
allocation, monitor it, rebalance when needed, and
report on the results so that you know your
percentage return each year.
You need to decide if you are a do-it-yourself
person or if you prefer to delegate.
Professionals tend to follow a more
disciplined process - so that in itself can
lead to better results, but if you were able to follow
that disciplined process on your own, then you
would achieve the same results.
Hiring someone does not mean they will achieve
higher returns than you would on your own. It means
you are hiring them to follow a disciplined and
consistent investment process and build an
appropriate portfolio for you.
If you want to delegate, these guidelines will help
you find the best-managed account:
• Pay attention to total costs. Ask for
an estimate of all trading costs, fund fees, and
advisor fees. Make sure total fees are 2% or less a
year.
• If you have money in after-tax accounts as well
as retirement accounts, find advisors who manage
for after-tax returns.
• If you have money in many different types of
accounts, find an advisor or managed account
platform that will manage your assets across a
household, not at an individual account level.
• If you want an online solution to automatically
manage your money, check out some of the top
roboadvisors.
Margin Account
What is a 'Margin Account?'
A margin account is a brokerage account in which the broker
lends the customer cash to purchase securities. The loan in
the account is collateralized by the securities and cash.
Because the customer is investing with a broker's money
rather than his own, the customer is using leverage to magnify
both gains and losses.
'Margin Account'
A margin account lets an investor borrow money from a broker
to purchase securities up to double the account’s cash
balance.
For example, an investor with $2,500 in a margin account buys
Company A’s stock for $5 per share. With the broker's $2,500
loan, the investor purchases $5,000 of Company A’s stock and
receives 1,000 shares. The stock appreciates $10 per share,
and the investor makes $10,000.
Margin Account Pros and Cons
With a 50% margin, an investor owns twice as much stock;
depending on the stock’s performance, he realizes twice the
gain or loss when compared to paying the entire purchase in
cash.
The brokerage firm charges interest on the balance of the
securities’ purchase price for as long as the loan is
outstanding, increasing the investor’s cost for buying the
securities.
If a margin account’s equity drops below a set amount of the
maintenance margin or total purchase amount, the brokerage
firm makes a margin call to the investor. Within three days, the
investor deposits more cash or sells some stock to offset all or
a portion of the difference between the security’s price and
the maintenance margin.
A brokerage firm has the right to
increase the minimum amount
required in a margin account, sell the
investor’s securities without notice or sue the investor if he
does not fulfill a margin call.
Therefore, the investor has the potential to lose more money
than the funds deposited in his account. For these reasons, a
margin account is more suitable for a sophisticated investor
understanding the additional investment risks and
requirements.
What is a 'Margin Account?'
A margin account is a brokerage account in which the broker
lends the customer cash to purchase securities. The loan in
the account is collateralized by the securities and cash.
Because the customer is investing with a broker's money
rather than his own, the customer is using leverage to magnify
both gains and losses.
'Margin Account'
A margin account lets an investor borrow money from a broker
to purchase securities up to double the account’s cash
balance.
For example, an investor with $2,500 in a margin account buys
Company A’s stock for $5 per share. With the broker's $2,500
loan, the investor purchases $5,000 of Company A’s stock and
receives 1,000 shares. The stock appreciates $10 per share,
and the investor makes $10,000.
Margin Account Pros and Cons
With a 50% margin, an investor owns twice as much stock;
depending on the stock’s performance, he realizes twice the
gain or loss when compared to paying the entire purchase in
cash.
The brokerage firm charges interest on the balance of the
securities’ purchase price for as long as the loan is
outstanding, increasing the investor’s cost for buying the
securities.
If a margin account’s equity drops below a set amount of the
maintenance margin or total purchase amount, the brokerage
firm makes a margin call to the investor. Within three days, the
investor deposits more cash or sells some stock to offset all or
a portion of the difference between the security’s price and
the maintenance margin.
A brokerage firm has the right to
increase the minimum amount
required in a margin account, sell the
investor’s securities without notice or sue the investor if he
does not fulfill a margin call.
Therefore, the investor has the potential to lose more money
than the funds deposited in his account. For these reasons, a
margin account is more suitable for a sophisticated investor
understanding the additional investment risks and
requirements.
Federal Regulations on Margin
Accounts
A margin account may not be used for buying stocks on margin
for an individual retirement account (IRA), Uniform Gift to
Minor account (UGMA), a trust or other fiduciary account;
these accounts require cash deposits.
In addition, a margin account cannot be used when purchasing
less than $2,000 in stock; buying stock in an initial public
offering (IPO); buying stock trading at less than $5 per share;
or for stocks trading anywhere other than the New York Stock
Exchange (NYSE) or the NASDAQ National Market.
-------------------------------
Margin account
A margin account is a loan account by a share trader with a
broker which can be used for share trading. The funds
available under the margin loan are determined by the broker
based on the securities owned and provided by the trader,
which act as collateral over the loan.
The broker usually has the right to change the percentage of
the value of each security it will allow towards further
advances to the trader, and may consequently make a margin
call if the balance available falls below the amount actually
utilised.
In any event, the broker will usually charge interest, and other
fees, on the amount drawn on the margin account.
If the cash balance of a margin account is negative, the
amount is owed to the broker, and usually attracts interest. If
the cash balance is positive, the money is available to the
account holder to reinvest, or may be withdrawn by the holder
or left in the account and may earn interest.
In terms of futures and cleared derivatives, the margin
balance would refer to the total value of collateral pledged to
the CCP (Central Counterparty Clearing) and or futures
commission merchants.
--------------------
Accounts
A margin account may not be used for buying stocks on margin
for an individual retirement account (IRA), Uniform Gift to
Minor account (UGMA), a trust or other fiduciary account;
these accounts require cash deposits.
In addition, a margin account cannot be used when purchasing
less than $2,000 in stock; buying stock in an initial public
offering (IPO); buying stock trading at less than $5 per share;
or for stocks trading anywhere other than the New York Stock
Exchange (NYSE) or the NASDAQ National Market.
-------------------------------
Margin account
A margin account is a loan account by a share trader with a
broker which can be used for share trading. The funds
available under the margin loan are determined by the broker
based on the securities owned and provided by the trader,
which act as collateral over the loan.
The broker usually has the right to change the percentage of
the value of each security it will allow towards further
advances to the trader, and may consequently make a margin
call if the balance available falls below the amount actually
utilised.
In any event, the broker will usually charge interest, and other
fees, on the amount drawn on the margin account.
If the cash balance of a margin account is negative, the
amount is owed to the broker, and usually attracts interest. If
the cash balance is positive, the money is available to the
account holder to reinvest, or may be withdrawn by the holder
or left in the account and may earn interest.
In terms of futures and cleared derivatives, the margin
balance would refer to the total value of collateral pledged to
the CCP (Central Counterparty Clearing) and or futures
commission merchants.
--------------------
''Margin:
Borrowing Money To Pay for
Stocks''
"Margin" is borrowing money from your broker to buy a
stock and using your investment as collateral. Investors
generally use margin to increase their purchasing power
so that they can own more stock without fully paying for it.
But margin exposes investors to the potential for higher
losses. Here's what you need to know about margin.
Understand How Margin Works
Let's say you buy a stock for $50 and the price of the stock
rises to $75. If you bought the stock in a cash account and
paid for it in full, you'll earn a 50 percent return on your
investment. But if you bought the stock on margin – paying
$25 in cash and borrowing $25 from your broker – you'll
earn a 100 percent return on the money you invested. Of
course, you'll still owe your firm $25 plus interest.
The downside to using margin is that if the stock price
decreases, substantial losses can mount quickly. For
example, let's say the stock you bought for $50 falls to $25.
If you fully paid for the stock, you'll lose 50 percent of your
money. But if you bought on margin, you'll lose 100
percent, and you still must come up with the interest you
owe on the loan.
In volatile markets, investors who put up an initial margin
payment for a stock may, from time to time, be required to
provide additional cash if the price of the stock falls. Some
investors have been shocked to find out that the
brokerage firm has the right to sell their securities that
were bought on margin – without any notification and
potentially at a substantial loss to the investor. If your
broker sells your stock after the price has plummeted,
then you've lost out on the chance to recoup your losses if
the market bounces back.
Recognize the Risks
Margin accounts can be very risky and they are not
suitable for everyone. Before opening a margin account,
you should fully understand that:
• You can lose more money than you have invested;
• You may have to deposit additional cash or securities
in your account on short notice to cover market losses;
• You may be forced to sell some or all of your
securities when falling stock prices reduce the value of
your securities; and
• Your brokerage firm may sell some or all of your
securities without consulting you to pay off the loan it
made to you.
You can protect yourself by
knowing how a margin account
works and what happens if the
price of the stock purchased on
margin declines. Know that your firm charges
you interest for borrowing money and how that will affect
the total return on your investments. Be sure to ask your
broker whether it makes sense for you to trade on margin
in light of your financial resources, investment objectives,
and tolerance for risk.
Borrowing Money To Pay for
Stocks''
"Margin" is borrowing money from your broker to buy a
stock and using your investment as collateral. Investors
generally use margin to increase their purchasing power
so that they can own more stock without fully paying for it.
But margin exposes investors to the potential for higher
losses. Here's what you need to know about margin.
Understand How Margin Works
Let's say you buy a stock for $50 and the price of the stock
rises to $75. If you bought the stock in a cash account and
paid for it in full, you'll earn a 50 percent return on your
investment. But if you bought the stock on margin – paying
$25 in cash and borrowing $25 from your broker – you'll
earn a 100 percent return on the money you invested. Of
course, you'll still owe your firm $25 plus interest.
The downside to using margin is that if the stock price
decreases, substantial losses can mount quickly. For
example, let's say the stock you bought for $50 falls to $25.
If you fully paid for the stock, you'll lose 50 percent of your
money. But if you bought on margin, you'll lose 100
percent, and you still must come up with the interest you
owe on the loan.
In volatile markets, investors who put up an initial margin
payment for a stock may, from time to time, be required to
provide additional cash if the price of the stock falls. Some
investors have been shocked to find out that the
brokerage firm has the right to sell their securities that
were bought on margin – without any notification and
potentially at a substantial loss to the investor. If your
broker sells your stock after the price has plummeted,
then you've lost out on the chance to recoup your losses if
the market bounces back.
Recognize the Risks
Margin accounts can be very risky and they are not
suitable for everyone. Before opening a margin account,
you should fully understand that:
• You can lose more money than you have invested;
• You may have to deposit additional cash or securities
in your account on short notice to cover market losses;
• You may be forced to sell some or all of your
securities when falling stock prices reduce the value of
your securities; and
• Your brokerage firm may sell some or all of your
securities without consulting you to pay off the loan it
made to you.
You can protect yourself by
knowing how a margin account
works and what happens if the
price of the stock purchased on
margin declines. Know that your firm charges
you interest for borrowing money and how that will affect
the total return on your investments. Be sure to ask your
broker whether it makes sense for you to trade on margin
in light of your financial resources, investment objectives,
and tolerance for risk.
Read Your Margin
Agreement
To open a margin account, your broker is required
to obtain your signature. The agreement may be part
of your account opening agreement or may be a
separate agreement.
The margin agreement states that you must abide by
the rules of the Federal Reserve Board, the New
York Stock Exchange, the National Association of
Securities Dealers, Inc., and the firm where you
have set up your margin account.
Be sure to carefully review the
agreement before you sign it.
As with most loans, the margin agreement explains
the terms and conditions of the margin account. The
agreement describes how the interest on the loan is
calculated, how you are responsible for repaying the
loan, and how the securities you purchase serve as
collateral for the loan.
Carefully review the agreement to determine what
notice, if any, your firm must give you before selling
your securities to collect the money you have
borrowed.
Know the Margin Rules
The Federal Reserve Board and
many self-regulatory organizations (SROs), such
as the NYSE and FINRA, have rules that govern
margin trading. Brokerage firms can establish their
own requirements as long as they are at least as
restrictive as the Federal Reserve Board and SRO
rules. Here are some of the key rules you should
know:
------------------
Agreement
To open a margin account, your broker is required
to obtain your signature. The agreement may be part
of your account opening agreement or may be a
separate agreement.
The margin agreement states that you must abide by
the rules of the Federal Reserve Board, the New
York Stock Exchange, the National Association of
Securities Dealers, Inc., and the firm where you
have set up your margin account.
Be sure to carefully review the
agreement before you sign it.
As with most loans, the margin agreement explains
the terms and conditions of the margin account. The
agreement describes how the interest on the loan is
calculated, how you are responsible for repaying the
loan, and how the securities you purchase serve as
collateral for the loan.
Carefully review the agreement to determine what
notice, if any, your firm must give you before selling
your securities to collect the money you have
borrowed.
Know the Margin Rules
The Federal Reserve Board and
many self-regulatory organizations (SROs), such
as the NYSE and FINRA, have rules that govern
margin trading. Brokerage firms can establish their
own requirements as long as they are at least as
restrictive as the Federal Reserve Board and SRO
rules. Here are some of the key rules you should
know:
------------------
''Understand Margin
Calls – You Can Lose
Your Money Fast and
With No Notice''
If your account falls below the firm's maintenance
requirement, your firm generally will make a margin
call to ask you to deposit more cash or securities
into your account.
If you are unable to meet the margin call, your firm
will sell your securities to increase the equity in
your account up to or above the firm's maintenance
requirement.
Always remember that your broker may not be
required to make a margin call or otherwise tell you
that your account has fallen below the firm's
maintenance requirement.
Your broker may be able to sell your securities at
any time without consulting you first. Under most
margin agreements, even if your firm offers to give
you time to increase the equity in your account, it
can sell your securities without waiting for you to
meet the margin call.
Calls – You Can Lose
Your Money Fast and
With No Notice''
If your account falls below the firm's maintenance
requirement, your firm generally will make a margin
call to ask you to deposit more cash or securities
into your account.
If you are unable to meet the margin call, your firm
will sell your securities to increase the equity in
your account up to or above the firm's maintenance
requirement.
Always remember that your broker may not be
required to make a margin call or otherwise tell you
that your account has fallen below the firm's
maintenance requirement.
Your broker may be able to sell your securities at
any time without consulting you first. Under most
margin agreements, even if your firm offers to give
you time to increase the equity in your account, it
can sell your securities without waiting for you to
meet the margin call.
''Investment Fees To Ask About Before You Invest
Always ask for details on investment fees.
Before you invest, take the time to understand all the investment fees associated with
your investment.
Any investment advisor worth working with should be willing to explain, in plain English, all
the various types of investment fees that you will pay. If you don't work with an advisor,
you'll still pay fees.
You'll have to did through the prospectus and financial institution websites and
documents to see what those fees are.
When inquiring about investment fees, if someone says, “My company pays me,” get more
details. You have a right to know what you are paying, and how someone is being
compensated for recommending an investment to you.
Here are the six types of investment fees to ask about.
1. Expense Ratio or Internal Expenses
It costs money to put together a mutual fund. To pay these costs, mutual funds charge
operating expenses. The total cost of the fund is expressed as an expense ratio.
• A fund with an expense ratio of .90%, means that for every $1,000 invested,
approximately $9 per year will go toward operating expenses.
• A fund with an expense ratio of 1.60% means that for every $1,000 invested,
approximately $16 per year will go toward operating expenses.
The expense ratio is not deducted from your account, rather the investment return you
receive is already net of the fees.
Example: Think about a mutual fund like a big batch of cookie dough; operating expenses
get pinched out of the dough each year.
The remaining dough is divided into cookies or shares. The value of each share is slightly
less because the fees were already taken out.
You can't compare expenses in all types of funds equally. Some types of funds, like
international funds, or small cap funds, will have higher expenses than a large cap fund or
bond fund.
It is best to look at expenses in terms of your entire portfolio of mutual funds. You can
build a great portfolio of index funds and pay no more than .50% a year in mutual fund
operating expenses.
2. Investment Management Fees or
Investment Advisory Fees
Investment management fees are charged as a percentage of the total assets managed.
These types of fees can often be at least partially paid with pretax or tax-deductible dollars.
Example: An investment advisor who charges 1% means that for every $100,000 invested,
you will pay $1,000 per year in advisory fees. This fee is most commonly debited from your
account each quarter; in this example, it would be $250 per quarter.
Many advisors or brokerage firms charge fees much higher than 1% a year. In some cases
they are also using high-fee mutual funds in which case you could be paying total fees of
2% or more. It is typical for smaller accounts to pay higher fees (as much as 1.75%) but if
you have a larger portfolio size ($1,000,000 or more) and are paying advisory fees in
excess of 1% then you better be getting additional services included in addition to
investment management.
Additional services might include comprehensive financial planning, tax planning, estate
planning, budgeting assistance, etc.
3. Transaction Fee
Many brokerage accounts charge a transaction fee each time an order to buy or sell a
mutual fund or stock is placed. These fees can range from $9.95 per trade to over $50 per
trade. If you are investing small amounts of money, these fees add up quickly.
Example: A $50 transaction fee on a $5,000 investment is 1%. A $50 transaction on $50,000
is only .10%, which is minimal.
4. Front-End Load
In addition to the ongoing operating expenses and "A share" mutual fund charges a front-
end load, or commission.
Example: If you were to buy a fund that has a front-end load of 5%, it works like this: You
buy shares at $10.00 per share, but the very next day your shares are only worth $9.50,
because .50 cents per share was charged as a front-end load.
5. Back-End Load or Surrender Charge
In addition to the ongoing operating expenses, "B share" mutual funds charge a back-end
load, or surrender charge. A back-end load is charged at the time you sell your fund. This
fee usually decreases for each successive year you own the fund.
Example: The fund may charge you a 5% back-end load if you sell it in year one, a 4% fee if
sold in year two, a 3% fee if sold in year three, and so on.
Variable annuities and index annuities often have hefty surrender charges. This is
because these products often pay large commissions up front to the folks selling them. If
you cash out of the product early the insurance company has to have a way to get back the
commissions they already paid. If you own the product long enough the insurance
company recoups its marketing costs over time. Thus the surrender fee decreases over
time.
6. Annual Account Fee or Custodian Fee
Brokerage accounts and mutual fund accounts may charge an annual account fee, which
can range from $25 - $90 per year. In the case of retirement accounts such as IRA’s, there
is usually an annual custodian fee, which covers the IRS reporting that is required on
these types of accounts.
This fee typically ranges from $10 - $50 per year. Many firms will also charge an account
closing fee if you terminate the account. Closing fees may range from $25 - $150 per
account. Most of the time if you are working with a financial advisor that charges a
percentage of assets these annual account fees are waived.
=================
Always ask for details on investment fees.
Before you invest, take the time to understand all the investment fees associated with
your investment.
Any investment advisor worth working with should be willing to explain, in plain English, all
the various types of investment fees that you will pay. If you don't work with an advisor,
you'll still pay fees.
You'll have to did through the prospectus and financial institution websites and
documents to see what those fees are.
When inquiring about investment fees, if someone says, “My company pays me,” get more
details. You have a right to know what you are paying, and how someone is being
compensated for recommending an investment to you.
Here are the six types of investment fees to ask about.
1. Expense Ratio or Internal Expenses
It costs money to put together a mutual fund. To pay these costs, mutual funds charge
operating expenses. The total cost of the fund is expressed as an expense ratio.
• A fund with an expense ratio of .90%, means that for every $1,000 invested,
approximately $9 per year will go toward operating expenses.
• A fund with an expense ratio of 1.60% means that for every $1,000 invested,
approximately $16 per year will go toward operating expenses.
The expense ratio is not deducted from your account, rather the investment return you
receive is already net of the fees.
Example: Think about a mutual fund like a big batch of cookie dough; operating expenses
get pinched out of the dough each year.
The remaining dough is divided into cookies or shares. The value of each share is slightly
less because the fees were already taken out.
You can't compare expenses in all types of funds equally. Some types of funds, like
international funds, or small cap funds, will have higher expenses than a large cap fund or
bond fund.
It is best to look at expenses in terms of your entire portfolio of mutual funds. You can
build a great portfolio of index funds and pay no more than .50% a year in mutual fund
operating expenses.
2. Investment Management Fees or
Investment Advisory Fees
Investment management fees are charged as a percentage of the total assets managed.
These types of fees can often be at least partially paid with pretax or tax-deductible dollars.
Example: An investment advisor who charges 1% means that for every $100,000 invested,
you will pay $1,000 per year in advisory fees. This fee is most commonly debited from your
account each quarter; in this example, it would be $250 per quarter.
Many advisors or brokerage firms charge fees much higher than 1% a year. In some cases
they are also using high-fee mutual funds in which case you could be paying total fees of
2% or more. It is typical for smaller accounts to pay higher fees (as much as 1.75%) but if
you have a larger portfolio size ($1,000,000 or more) and are paying advisory fees in
excess of 1% then you better be getting additional services included in addition to
investment management.
Additional services might include comprehensive financial planning, tax planning, estate
planning, budgeting assistance, etc.
3. Transaction Fee
Many brokerage accounts charge a transaction fee each time an order to buy or sell a
mutual fund or stock is placed. These fees can range from $9.95 per trade to over $50 per
trade. If you are investing small amounts of money, these fees add up quickly.
Example: A $50 transaction fee on a $5,000 investment is 1%. A $50 transaction on $50,000
is only .10%, which is minimal.
4. Front-End Load
In addition to the ongoing operating expenses and "A share" mutual fund charges a front-
end load, or commission.
Example: If you were to buy a fund that has a front-end load of 5%, it works like this: You
buy shares at $10.00 per share, but the very next day your shares are only worth $9.50,
because .50 cents per share was charged as a front-end load.
5. Back-End Load or Surrender Charge
In addition to the ongoing operating expenses, "B share" mutual funds charge a back-end
load, or surrender charge. A back-end load is charged at the time you sell your fund. This
fee usually decreases for each successive year you own the fund.
Example: The fund may charge you a 5% back-end load if you sell it in year one, a 4% fee if
sold in year two, a 3% fee if sold in year three, and so on.
Variable annuities and index annuities often have hefty surrender charges. This is
because these products often pay large commissions up front to the folks selling them. If
you cash out of the product early the insurance company has to have a way to get back the
commissions they already paid. If you own the product long enough the insurance
company recoups its marketing costs over time. Thus the surrender fee decreases over
time.
6. Annual Account Fee or Custodian Fee
Brokerage accounts and mutual fund accounts may charge an annual account fee, which
can range from $25 - $90 per year. In the case of retirement accounts such as IRA’s, there
is usually an annual custodian fee, which covers the IRS reporting that is required on
these types of accounts.
This fee typically ranges from $10 - $50 per year. Many firms will also charge an account
closing fee if you terminate the account. Closing fees may range from $25 - $150 per
account. Most of the time if you are working with a financial advisor that charges a
percentage of assets these annual account fees are waived.
=================
''How to Buy Stock Without a Broker
3 Ways You Can Invest on Your Own''
While there is no doubt that the most popular way to buy and sell investments is opening a brokerage account,
many new investors ask me how to buy stock without a broker.
For those of you who want to go down this path, you can do so with varying degrees of success—there is no
requirement that you have to work with a broker to invest in stocks or mutual funds, particularly equity funds. It
offers some advantages and disadvantages, which you will need to weigh based on your personal situation but my
goal here is to provide you with an overview so you have a better handle on how to invest without a broker by the
time you're finished reading.
1. Invest Through a Company's Direct Stock Purchase Plan
The first and often easiest method of buying stock without a broker is in situations where companies, often blue
chips, sponsor a special type of program called a DSPP, or Direct Stock Purchase Plan.
These plans were originally conceived generations ago as a way for businesses to let smaller investors buy
ownership directly from the company, working through a transfer agent or plan administrator responsible for
dealing with the day-to-day paperwork and transactions.
Most plans will allow investors to buy stock without a broker if they agree to either have a reasonable amount taken
out of their checking or savings amount every month for six months (often $50 is the acceptable minimum) or they
make a one-time purchase, often $250 or $500.
Ordinarily, the plan administrators batch the cash from those participating in the direct stock purchase plan and use
it to buy shares of the company, either on the open market or freshly issued from the business itself, on
predetermined dates.
The average cost of the purchases is weighed out or some other methodology is used to equalize the cost among
investors with the stock allocated to the account of each owner. Just as you get a statement from the bank, the
direct stock purchase plan statement arrives, in most situations quarterly, with a listing of the number of shares you
own, any dividends you've received, and any purchases or sales you've made.
Some direct stock purchase plans execute trades commission-free. Others charge small transaction fees,
frequently $1 or $2 plus a few cents per share, for each purchase and a larger fee, perhaps $15 plus a few cents per
share, for a sale. These are a lot lower than what you'd pay at a full-service broker.
2. Take Advantage of the Dividend Reinvestment
Program
The next best way to buy stock without a broker is to enroll in a stock's dividend reinvestment program or DRIP. I've
shared with you some of the reasons you should consider investing through a DRIP but it would be helpful to revisit
them here so you understand the appeal. DRIPs allow you to take cash dividends paid out by the company you own
and plow them back into buy more shares, charging either nominal fees or nothing at all depending upon the
specifics of the individual plan. For a typical stock, which may pay out a dividend four times a year, that's a lot of
transactions over 25 or 50 years on which you aren't paying commissions.
(In the United States, some brokers traditionally reinvest dividends in certain issues at no cost for clients so if
you're fortunate enough to have such an arrangement, buying stock without a broker doesn't have as much appeal.)
Dividend reinvestment programs are often coupled with cash investment options that resemble direct stock
purchase plans so you can regularly have money withdrawn from your checking or savings account, or send in one-
time payments whenever you feel like, perhaps as little as $25, buying more shares of stock in a business as you
might purchase something from a mail order catalog. In fact, when I was teaching you about how to make a UTMA
gift, I gave you a glimpse into my own family's past of buying stock without a broker; how we gifted my younger
sister $12,948.10 worth of Coca-Cola shares.
A lot of long-term investors have become adept at building wealth through these types of accounts, buying stock
without a broker for years, even decades; janitors who left behind $8 million fortunes or retired old ladies who built
up the equivalent of more than $34 million in 2016 purchasing power from their tiny apartments.
3. Buy a Single Share of Stock Through a Specialized
Service
Up until recently, you could use companies that allowed you to buy a single share of stock to get your name on a
corporate shareholder list, then enroll in closed direct stock purchase plans or dividend reinvestment plans that
forbid outsiders who didn't already own the stock. Unfortunately, in the financial industry's decision to move away
from paper stock certificates, this has become all but untenable.
To take advantage of it, you'd need to pay a stock broker $250 or $500 in a so-called "nuisance fee" to issue the
paper certificate. Instead, you'd be better off buying stock through a brokerage account and having it titled through
the Direct Registration System. The problem is, you need a broker to do it.
This is one of those areas where the wealthy have an advantage over everyone else. If a rich investor has a
relationship with an asset management company, he or she could probably get the Registered Investment Advisor
to have one of the firm's institutional brokers place a trade on behalf of the client then transfer it as a gift to a child
or family member through the DRS. The child or other recipient of the equity would now be able to buy stock without
a broker in that particular business; granted access by those who could do it with ease.
3 Ways You Can Invest on Your Own''
While there is no doubt that the most popular way to buy and sell investments is opening a brokerage account,
many new investors ask me how to buy stock without a broker.
For those of you who want to go down this path, you can do so with varying degrees of success—there is no
requirement that you have to work with a broker to invest in stocks or mutual funds, particularly equity funds. It
offers some advantages and disadvantages, which you will need to weigh based on your personal situation but my
goal here is to provide you with an overview so you have a better handle on how to invest without a broker by the
time you're finished reading.
1. Invest Through a Company's Direct Stock Purchase Plan
The first and often easiest method of buying stock without a broker is in situations where companies, often blue
chips, sponsor a special type of program called a DSPP, or Direct Stock Purchase Plan.
These plans were originally conceived generations ago as a way for businesses to let smaller investors buy
ownership directly from the company, working through a transfer agent or plan administrator responsible for
dealing with the day-to-day paperwork and transactions.
Most plans will allow investors to buy stock without a broker if they agree to either have a reasonable amount taken
out of their checking or savings amount every month for six months (often $50 is the acceptable minimum) or they
make a one-time purchase, often $250 or $500.
Ordinarily, the plan administrators batch the cash from those participating in the direct stock purchase plan and use
it to buy shares of the company, either on the open market or freshly issued from the business itself, on
predetermined dates.
The average cost of the purchases is weighed out or some other methodology is used to equalize the cost among
investors with the stock allocated to the account of each owner. Just as you get a statement from the bank, the
direct stock purchase plan statement arrives, in most situations quarterly, with a listing of the number of shares you
own, any dividends you've received, and any purchases or sales you've made.
Some direct stock purchase plans execute trades commission-free. Others charge small transaction fees,
frequently $1 or $2 plus a few cents per share, for each purchase and a larger fee, perhaps $15 plus a few cents per
share, for a sale. These are a lot lower than what you'd pay at a full-service broker.
2. Take Advantage of the Dividend Reinvestment
Program
The next best way to buy stock without a broker is to enroll in a stock's dividend reinvestment program or DRIP. I've
shared with you some of the reasons you should consider investing through a DRIP but it would be helpful to revisit
them here so you understand the appeal. DRIPs allow you to take cash dividends paid out by the company you own
and plow them back into buy more shares, charging either nominal fees or nothing at all depending upon the
specifics of the individual plan. For a typical stock, which may pay out a dividend four times a year, that's a lot of
transactions over 25 or 50 years on which you aren't paying commissions.
(In the United States, some brokers traditionally reinvest dividends in certain issues at no cost for clients so if
you're fortunate enough to have such an arrangement, buying stock without a broker doesn't have as much appeal.)
Dividend reinvestment programs are often coupled with cash investment options that resemble direct stock
purchase plans so you can regularly have money withdrawn from your checking or savings account, or send in one-
time payments whenever you feel like, perhaps as little as $25, buying more shares of stock in a business as you
might purchase something from a mail order catalog. In fact, when I was teaching you about how to make a UTMA
gift, I gave you a glimpse into my own family's past of buying stock without a broker; how we gifted my younger
sister $12,948.10 worth of Coca-Cola shares.
A lot of long-term investors have become adept at building wealth through these types of accounts, buying stock
without a broker for years, even decades; janitors who left behind $8 million fortunes or retired old ladies who built
up the equivalent of more than $34 million in 2016 purchasing power from their tiny apartments.
3. Buy a Single Share of Stock Through a Specialized
Service
Up until recently, you could use companies that allowed you to buy a single share of stock to get your name on a
corporate shareholder list, then enroll in closed direct stock purchase plans or dividend reinvestment plans that
forbid outsiders who didn't already own the stock. Unfortunately, in the financial industry's decision to move away
from paper stock certificates, this has become all but untenable.
To take advantage of it, you'd need to pay a stock broker $250 or $500 in a so-called "nuisance fee" to issue the
paper certificate. Instead, you'd be better off buying stock through a brokerage account and having it titled through
the Direct Registration System. The problem is, you need a broker to do it.
This is one of those areas where the wealthy have an advantage over everyone else. If a rich investor has a
relationship with an asset management company, he or she could probably get the Registered Investment Advisor
to have one of the firm's institutional brokers place a trade on behalf of the client then transfer it as a gift to a child
or family member through the DRS. The child or other recipient of the equity would now be able to buy stock without
a broker in that particular business; granted access by those who could do it with ease.
Final Thoughts on Buying Stock Without a
Broker
These days, there's really no reason to avoid opening a brokerage account. Those of you worried about
rehypothecation risk should opt to open a cash-only brokerage account, not a margin account. Make sure
you are covered by SIPC insurance.
If you are smart about the firm with which you are working and are only buying ordinary domestic common
stocks, you can probably get away with trading costs and commissions for less than a trip to your favorite
coffee shop.
---------------
DRIP = Dividend reinvestment plan...
A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option
offered directly from the underlying company. The investor does not receive quarterly dividends directly as
cash; instead, the investor's dividends are directly reinvested in the underlying equity. (The investor must
still pay tax annually on his or her dividend income, whether it is received or reinvested.)
This allows the investment return from dividends to be immediately invested for the purpose of price
appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for
a full share of stock. Some DRIPs are free of charge for participants, while others do charge fees and/or
proportional commissions.
Similarly income trusts and closed-end funds, which are numerous in Canada, can offer a Distribution
Reinvestment Plan and a Unit Purchase Plan which operate principally the same as other plans.
Because DRIPs, by their nature, encourage long-term investment, rather than active trading, they tend to
have a stabilizing influence on stock prices.
Although the name implies that reinvesting dividends is the main purpose of these plans, many companies
offer a complementary Share Purchase Plan (SPP). An SPP allows the enrollee to make Optional Cash
Purchases (OCPs) periodically of company stock.
The dollar amount of the OCP is sometimes subject to minimum and maximum limits, e.g. a minimum of $ 25
per OCP or a maximum that cannot exceed $100,000 per year. Low-fee or no-fee Share Purchase Plans are
important to enrollees as they offer a quick and cost-effective way to increase their holdings.
-----------
Why Investors Should Consider Investing
Through DRIPs
The appeal of a DRIP account is that you open it with a stock transfer agent or other sponsoring financial
institution instead of with a stock broker.
With a DRIP account, you can setup regular, reoccurring purchase instructions so that money is taken out of
your checking or savings account each week, month, or quarter, and used to buy shares of stock in the
business in which you've decided you want to become an owner.
Many DRIPs are also direct stock purchase plans, allowing you to buy shares of a company directly from the
business. Most don't charge a commission or fee for regular investment purchases. The remainder often
charge a very small fee (e.g., $2.00 per transaction), helping you keep more of your money working for you
to generate dividends.
It's no secret that I am a fan of DRIPs playing a role in a portfolio. I've written about how, growing up, my
family taught my youngest sibling about investing by using the Coca-Cola direct stock purchase plan
Broker
These days, there's really no reason to avoid opening a brokerage account. Those of you worried about
rehypothecation risk should opt to open a cash-only brokerage account, not a margin account. Make sure
you are covered by SIPC insurance.
If you are smart about the firm with which you are working and are only buying ordinary domestic common
stocks, you can probably get away with trading costs and commissions for less than a trip to your favorite
coffee shop.
---------------
DRIP = Dividend reinvestment plan...
A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option
offered directly from the underlying company. The investor does not receive quarterly dividends directly as
cash; instead, the investor's dividends are directly reinvested in the underlying equity. (The investor must
still pay tax annually on his or her dividend income, whether it is received or reinvested.)
This allows the investment return from dividends to be immediately invested for the purpose of price
appreciation and compounding, without incurring brokerage fees or waiting to accumulate enough cash for
a full share of stock. Some DRIPs are free of charge for participants, while others do charge fees and/or
proportional commissions.
Similarly income trusts and closed-end funds, which are numerous in Canada, can offer a Distribution
Reinvestment Plan and a Unit Purchase Plan which operate principally the same as other plans.
Because DRIPs, by their nature, encourage long-term investment, rather than active trading, they tend to
have a stabilizing influence on stock prices.
Although the name implies that reinvesting dividends is the main purpose of these plans, many companies
offer a complementary Share Purchase Plan (SPP). An SPP allows the enrollee to make Optional Cash
Purchases (OCPs) periodically of company stock.
The dollar amount of the OCP is sometimes subject to minimum and maximum limits, e.g. a minimum of $ 25
per OCP or a maximum that cannot exceed $100,000 per year. Low-fee or no-fee Share Purchase Plans are
important to enrollees as they offer a quick and cost-effective way to increase their holdings.
-----------
Why Investors Should Consider Investing
Through DRIPs
The appeal of a DRIP account is that you open it with a stock transfer agent or other sponsoring financial
institution instead of with a stock broker.
With a DRIP account, you can setup regular, reoccurring purchase instructions so that money is taken out of
your checking or savings account each week, month, or quarter, and used to buy shares of stock in the
business in which you've decided you want to become an owner.
Many DRIPs are also direct stock purchase plans, allowing you to buy shares of a company directly from the
business. Most don't charge a commission or fee for regular investment purchases. The remainder often
charge a very small fee (e.g., $2.00 per transaction), helping you keep more of your money working for you
to generate dividends.
It's no secret that I am a fan of DRIPs playing a role in a portfolio. I've written about how, growing up, my
family taught my youngest sibling about investing by using the Coca-Cola direct stock purchase plan
With DRIPs, You Can Reinvest None, Some, or
All of Your Dividends
Besides their low-cost or no-cost commission schedules, a major benefit of Dividend Reinvestment Plans is they
give you three options to reinvest your dividends:
• Fully reinvest all of your dividend income to buy more shares of stock in the company (presumably, to earn
even more dividends in the future)
• Partially reinvest your dividends and send the rest to you through a mailed check or direct deposited to your
checking account or savings account. You can set the percentage yourself. For example, "I want to reinvest 70% of
my dividend income and have the remaining 30% direct deposited to my bank."
• Fully pay out all dividends you earn, either through a mailed check or through a direct deposit to your bank
account.
You can switch your election fairly easily. After a lifetime of saving and investing, you could then call the transfer
agent, fill out a few papers, and go from full dividend reinvestment to full dividend distribution, receiving a check
for your share of the company's paid out profits.
------------
Which Types of Investors Should Consider DRIPs in
Their Portfolio?
For long-term investors who want to pick a handful of great businesses, own them for a very long time, reinvest
their dividends, and regularly buy more ownership, a DRIP is probably the lowest cost, best way to go
------------
My Broker Told Me All of My Stocks are Held in
a Street Name
If you invest through a broker, brokerage firm, or bank, the odds are 99 to 1 that your stocks, bonds, mutual funds,
and other assets are held in a street name, not your own name. What does that mean? Is it bad?
What Does It Mean To Own Shares of Stock In a Street Name?
Stocks Held in a Street Name Are Technically Owned By Your
Brokerage Firm
Some investors hold physical stock certificates; pieces of paper with their name on them that represent their
ownership in a corporation. Other investors are invested in a DRIP, or dividend reinvestment program, and their
shares are noted by the company’s registrar in an electronic journal; this is known as “book entry”.
In both cases, the company can quickly and easily access the total number of shares you own and / or contact you
directly.
The most popular holding form for most investors, however, is through a brokerage account or asset management
account.
There Are Some Dangers If You Hold Stock In a Street Name
Holding stock in a street name is an accepted practice but you shouldn't keep a huge portion of your net worth in a
brokerage account using this method, especially if your account value exceeds the SIPC insurance limits
-----------------==
If My Broker Goes Bankrupt, Do I Lose All of My Money?
About once every decade, you see a host of brokers, brokerage firms, and banks fail and descend into bankruptcy
protection. What happens if you held your investments, such as stocks, bonds, mutual funds, or retirement
accounts, through a brokerage firm that went bankrupt? Will you lose all of the money you had invested with
How The Securities Investor Protection Corporation (SIPC) Protects
You
Only Choose Brokers Who are Covered by this Important Protection!
There are several ways to hold your investments. Most ordinary investors own their stocks, bonds, mutual funds,
and other securities through their brokerage accounts, often a margin account. The result is that the firm itself
technically owns the stock and holds it on behalf of their clients. When this happens, the shares are said to be held
in "street name".
If and when a brokerage firm goes bankrupt, without protection from the SIPC, the clients would lose all of their
assets and be wiped out despite the businesses they held, companies such as Procter&Gamblea or Berkshire
Hathaway, being perfectly fine. Physical stock certificates, on the other hand, can be lost in addition to being a
hassle to register, put in a safe deposit box, turned back in upon sale, and be re-registered to the new owner.
Knowing this, the government created the Securities
Investor Protection Corporation – the SIPC for short – in 1970
through Securities Investors Protection Act. It is not an agency of the Federal government, but instead a member
institution where each of the financial institutions that are a part of it pay in to the system.
The SIPC does not protect investors against losses from their investments. All it does is replace many of the
investments held in their account if their broker or financial institution goes bankrupt.
That’s it. If you owned 500 shares of Microsoft prior to a bankruptcy, all you’re going to get is 500 shares of
Microsoft in a new brokerage account at the institution of your choice after the bankruptcy is sorted out by the
SIPC staff. It’s that simple. In the meantime, MSFT might be up, it might be down, or it might have gone nowhere.
All of Your Dividends
Besides their low-cost or no-cost commission schedules, a major benefit of Dividend Reinvestment Plans is they
give you three options to reinvest your dividends:
• Fully reinvest all of your dividend income to buy more shares of stock in the company (presumably, to earn
even more dividends in the future)
• Partially reinvest your dividends and send the rest to you through a mailed check or direct deposited to your
checking account or savings account. You can set the percentage yourself. For example, "I want to reinvest 70% of
my dividend income and have the remaining 30% direct deposited to my bank."
• Fully pay out all dividends you earn, either through a mailed check or through a direct deposit to your bank
account.
You can switch your election fairly easily. After a lifetime of saving and investing, you could then call the transfer
agent, fill out a few papers, and go from full dividend reinvestment to full dividend distribution, receiving a check
for your share of the company's paid out profits.
------------
Which Types of Investors Should Consider DRIPs in
Their Portfolio?
For long-term investors who want to pick a handful of great businesses, own them for a very long time, reinvest
their dividends, and regularly buy more ownership, a DRIP is probably the lowest cost, best way to go
------------
My Broker Told Me All of My Stocks are Held in
a Street Name
If you invest through a broker, brokerage firm, or bank, the odds are 99 to 1 that your stocks, bonds, mutual funds,
and other assets are held in a street name, not your own name. What does that mean? Is it bad?
What Does It Mean To Own Shares of Stock In a Street Name?
Stocks Held in a Street Name Are Technically Owned By Your
Brokerage Firm
Some investors hold physical stock certificates; pieces of paper with their name on them that represent their
ownership in a corporation. Other investors are invested in a DRIP, or dividend reinvestment program, and their
shares are noted by the company’s registrar in an electronic journal; this is known as “book entry”.
In both cases, the company can quickly and easily access the total number of shares you own and / or contact you
directly.
The most popular holding form for most investors, however, is through a brokerage account or asset management
account.
There Are Some Dangers If You Hold Stock In a Street Name
Holding stock in a street name is an accepted practice but you shouldn't keep a huge portion of your net worth in a
brokerage account using this method, especially if your account value exceeds the SIPC insurance limits
-----------------==
If My Broker Goes Bankrupt, Do I Lose All of My Money?
About once every decade, you see a host of brokers, brokerage firms, and banks fail and descend into bankruptcy
protection. What happens if you held your investments, such as stocks, bonds, mutual funds, or retirement
accounts, through a brokerage firm that went bankrupt? Will you lose all of the money you had invested with
How The Securities Investor Protection Corporation (SIPC) Protects
You
Only Choose Brokers Who are Covered by this Important Protection!
There are several ways to hold your investments. Most ordinary investors own their stocks, bonds, mutual funds,
and other securities through their brokerage accounts, often a margin account. The result is that the firm itself
technically owns the stock and holds it on behalf of their clients. When this happens, the shares are said to be held
in "street name".
If and when a brokerage firm goes bankrupt, without protection from the SIPC, the clients would lose all of their
assets and be wiped out despite the businesses they held, companies such as Procter&Gamblea or Berkshire
Hathaway, being perfectly fine. Physical stock certificates, on the other hand, can be lost in addition to being a
hassle to register, put in a safe deposit box, turned back in upon sale, and be re-registered to the new owner.
Knowing this, the government created the Securities
Investor Protection Corporation – the SIPC for short – in 1970
through Securities Investors Protection Act. It is not an agency of the Federal government, but instead a member
institution where each of the financial institutions that are a part of it pay in to the system.
The SIPC does not protect investors against losses from their investments. All it does is replace many of the
investments held in their account if their broker or financial institution goes bankrupt.
That’s it. If you owned 500 shares of Microsoft prior to a bankruptcy, all you’re going to get is 500 shares of
Microsoft in a new brokerage account at the institution of your choice after the bankruptcy is sorted out by the
SIPC staff. It’s that simple. In the meantime, MSFT might be up, it might be down, or it might have gone nowhere.
What Are Different Types of Investment
Accounts? - Ultimate guide to retirement At
Knowledge Financial Group -
What are the best accounts for great
investments?
Accounts? - Ultimate guide to retirement At
Knowledge Financial Group -
What are the best accounts for great
investments?
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Company: How a Holding Company Works?
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Financial Article #2. Understanding a
Holding Company... Blog. And Venture
Capitalists, Private Equity Funds, and Angel
Investors..Right Here, Right Now...
Financial Article #3. Holy Trinity of
Getting Rich And Mission Statement Of Fem
Konsa Capital:= Holy Trinity of Getting Rich tlbr
Financial Article #3. Wall Street
knowledge expert advice and feature coverage
on investments, personal finance, including
stocks, bonds, mutual funds, ETFs, retirement
plans, real estate, insurance, finance, economy
etc. On SM=fb =
Financial Article #5. Here At Social
Media = Market Knowledge: Where to invest,
How to invest, What to invest in? Important
ingredients in the world of investing...
Financial Article #6. Real Estate
Service For Buyers And Sellers; Everything
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Comfortable Lifestyle. It's Free, Get it right
here...
Financial Article #8. To Obtain
Financial Independence, To Feel Secure
Economically, To Climb The Wealth Pyramid.
You need to see this...F.A.S. - fb
Financial Article #9. Wall Street
Market Millionaires Secrets Revealed About
How To really Make Money? Success secrets
of self made millionaire, The science of getting
rich. Fb Social Media Money Making Page''
''Financial Article #10. VBC=
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| '' Visionone Holding Company: How To Invest - Where To Invest - When To Invest - What To Invest In? Visionone Holding Pages Is A Complete Guide Of Investment Methods - Techniques & Strategies ?* ---------------- '' Stock Market 101: Learn Everything About Stock Investing.. Frugal Lifestyle! How to Invest in Stocks? The Complete Beginner's Guide to Investing in The Stock market. ------------- '' How To Really Invsting In Oil In Gas To Make Profits.. Oil & Gas Futures Trading 101 '' How To Start Investing In OIL AND GAS? A Guide To Investing In The Oil Markets. -------------- '' Self - Directed IRA: What Are Self-Directed IRAs? How Self-Directed IRAs Let you Invest in Anything? How To Invest In Real Estate With IRA's, 401k's money? ------------- '' Option: What Is An Option? How To Invest In Option contracts? In finance, an option is a contract.. Learn more about option... ------------- '' Commodities 101: Overview Of Commodities Trading .. How to Invest in Commodities - How does commodity futures trading work.. -------------- '' Option' What Is An Option? How To Invest In Option & Futures contracts To Make Money? '' The Investment Guide For Option & Futures Contracts.. ------------------ '' Energy And Petroleum Investment Community Resources. How to invest in energy & petroleum companies - Visiongas.. ----------------- '' Money Wisers Group, Opportunities to Improve the Financial Capability and Financial Well-being. Financial Education for Everyone.. Money Wisers Group ---------------- '' Real Service For Investors, Home Buyers And Home Sellers... The Real Estate Blog That Everyone Should Know About.. --------------- '' Home Ownership - Affordability - Why Rent When You Can Buy? Real Estate Investing Guide The Right Strategy For The Right Market. ------------------ '' Find 55+ Communities - Affordable Retirement Communities... Look At Few Best Affordable Places to Buy a Retirement Home This Year... ------------------ '' How to Find Discount Properties? Real Estate Home Buying / -/ Real Estate Home Selling /- / Real Estate Home Renting / ----------------- '' American Dollar: Here's What You Need To Know About The Dollar... ------------------ '' Money Management: Ten Resolutions to Make Your Financial Life Easier.. Here's 10 Ways to Avoid Overdraft and Bounced Check Fees... ----------- '' THE RULES OF SUCCESS-The rules of money.. THE JOURNEY, Every journey requires a starting point, a route, and a destination. Here it is... |
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| '' Investment & Investors'' = Frugal Living 101 - // ' Money Wisers Group .'Saving, budgeting and planning! ''USA And International Stock Indexes'' '' Knowledge Center '' '' Financial Service '' ' ' Business Resource Center '' Financial Group '' '' Banking And Finance '' '' Investing Basic '' Learning Center '' '' How To Invest In Stocks '' Investing In Mutual Funds '' '' How To Invest In Index Funds '' '' How To Invest For Retirement '' '' How To Invest In Insurance '' '' Investing In Bonds '' '' How To Invest In Residential Real Estate'' '' How To Invest In Commercial Real Estate'' '' How To Invest In Tax Lien Certificates '' '' How To Invest In Forex Market '' '' Accounting Basic '' '' Personal Finance '' '' Fortune Builder '' ''American Dollar'' - Money Management |
Discretionary Account…
What is a 'Discretionary Account'
A discretionary account is one that allows a broker to buy and sell securities without the client’s
consent.
However, they still must make decisions in accord with the clients stated investment goals. A non-
discretionary account is one where the client makes all the trading decisions.
-----------------------
A discretionary account is an investment account that allows a
broker to buy and sell securities without the client's consent.
The client must sign a discretionary disclosure with the broker as documentation of the client's
consent.
A discretionary account is sometimes referred to as a managed account; many brokerage houses
require client minimums (such as $250,000) to be eligible for this service, some companies may ask for
less.
-----------------
'Discretionary Account'
Depending on the specific agreement between investor and broker, the broker may have a varying
degree of latitude with a discretionary account. The client may set parameters regarding trading in the
account.
For example, a client might only permit investments in blue-chip stocks.
An investor who favors socially responsible investing may forbid the broker from investing in tobacco
company stock or in companies with poor environmental records.
An investor might instruct the broker to maintain a specific ratio of stocks to bonds but permit the
broker freedom to invest within these asset classes as the broker sees fit.
--------------------
Advantages of Discretionary Accounts
The first advantage of a discretionary account is convenience. Assuming that the client trusts the
broker's advice, providing the broker latitude to execute trades at will saves the client the time it takes
to communicate with the broker before each potential trade.
For a client who trusts his broker but is hesitant to hand the reins over in full, this is where setting
parameters and guidelines comes into play.
---------------------
Most brokers handle trades for a multitude of clients. On occasion, the
broker becomes aware of a specific buying or selling opportunity beneficial to all of his clients.
If the broker has to contact clients one at a time before executing the trade, the trading activity for the
first few clients could impact the pricing for the clients at the end of the list.
With discretionary accounts, the broker can execute a large block trade for all clients, so all of his
clients will receive the same pricing.
---------------
Discretionary Account Setup
The first step to setting up a discretionary account is finding a registered broker who offers this
service. Depending on the brokerage house, an account minimum may be required to set up a
discretionary account
---------------
What is a 'Discretionary Account'
A discretionary account is one that allows a broker to buy and sell securities without the client’s
consent.
However, they still must make decisions in accord with the clients stated investment goals. A non-
discretionary account is one where the client makes all the trading decisions.
-----------------------
A discretionary account is an investment account that allows a
broker to buy and sell securities without the client's consent.
The client must sign a discretionary disclosure with the broker as documentation of the client's
consent.
A discretionary account is sometimes referred to as a managed account; many brokerage houses
require client minimums (such as $250,000) to be eligible for this service, some companies may ask for
less.
-----------------
'Discretionary Account'
Depending on the specific agreement between investor and broker, the broker may have a varying
degree of latitude with a discretionary account. The client may set parameters regarding trading in the
account.
For example, a client might only permit investments in blue-chip stocks.
An investor who favors socially responsible investing may forbid the broker from investing in tobacco
company stock or in companies with poor environmental records.
An investor might instruct the broker to maintain a specific ratio of stocks to bonds but permit the
broker freedom to invest within these asset classes as the broker sees fit.
--------------------
Advantages of Discretionary Accounts
The first advantage of a discretionary account is convenience. Assuming that the client trusts the
broker's advice, providing the broker latitude to execute trades at will saves the client the time it takes
to communicate with the broker before each potential trade.
For a client who trusts his broker but is hesitant to hand the reins over in full, this is where setting
parameters and guidelines comes into play.
---------------------
Most brokers handle trades for a multitude of clients. On occasion, the
broker becomes aware of a specific buying or selling opportunity beneficial to all of his clients.
If the broker has to contact clients one at a time before executing the trade, the trading activity for the
first few clients could impact the pricing for the clients at the end of the list.
With discretionary accounts, the broker can execute a large block trade for all clients, so all of his
clients will receive the same pricing.
---------------
Discretionary Account Setup
The first step to setting up a discretionary account is finding a registered broker who offers this
service. Depending on the brokerage house, an account minimum may be required to set up a
discretionary account
---------------
‘’Investment & Market Knowledge’’ = ‘’Business Ideas & Opportunities’’ = ''Financial
Literacy & Education''
‘’Wills & Estate Planning’’ = ‘’Banking & Finance’’ - = ‘’Living Will & Living Trust’’ -
''Business Info & Resources''
‘’Saving & Budgeting’’ - ‘’Financial Market & Investing’’ – ‘’Retirement & Insurance’’ -
‘’USA & International Stock Indexes’’ -/ Visionairebiz -/
=/ ‘’Stock Brokers – Day Traders & Investors’’ - ''Power Of Knowledge & Education''
''Millionaire Mind Set & Entrepreneurs Strategies'' = ''Stocks /–/ Bonds – Mutual Fund
/–/ Reit –Real Estate Trust -/
/=/ Currency Exchange /–/ Index Funds /–/ Commodities /–/ Self-Directed IRA & Real
Estate /–/
/- Options & Futures = Exchange Traded Fund {ETF’s} /-/
RULE OF 72: Compound interest & Accounting Basic''
Literacy & Education''
‘’Wills & Estate Planning’’ = ‘’Banking & Finance’’ - = ‘’Living Will & Living Trust’’ -
''Business Info & Resources''
‘’Saving & Budgeting’’ - ‘’Financial Market & Investing’’ – ‘’Retirement & Insurance’’ -
‘’USA & International Stock Indexes’’ -/ Visionairebiz -/
=/ ‘’Stock Brokers – Day Traders & Investors’’ - ''Power Of Knowledge & Education''
''Millionaire Mind Set & Entrepreneurs Strategies'' = ''Stocks /–/ Bonds – Mutual Fund
/–/ Reit –Real Estate Trust -/
/=/ Currency Exchange /–/ Index Funds /–/ Commodities /–/ Self-Directed IRA & Real
Estate /–/
/- Options & Futures = Exchange Traded Fund {ETF’s} /-/
RULE OF 72: Compound interest & Accounting Basic''
Custodial Account
- Custodial Account: A custodial Account is a financial account such as a bank account, a trust fund or a brokerage account) set up for the benefit of
a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary
Custodial Account For A Minor ...
What is a custodial account? This simple way to transfer property to a minor is called a Uniform Transfer to Minors (UTMA) or Uniform Gift to Minors
(UGMA) transfer depending in which state the minor resides. Income eligibility restrictions
===============
===========Custodial accounts
Custodial accounts can be thought of as a type of trust account, and are used to save money for children, their beneficiaries. These accounts are set
up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).
Custodial accounts allow minors under—generally defined as someone under the age of 18—to own an account without the burden of handling the
assets. The responsibility of managing the account falls to the custodian. Custodians are usually the parents or appointed guardians.
Custodial accounts can help teach young people investing and money management basics, by allowing custodians to show them what goes into
investing.
'Custodial Account'. There are two types of custodial accounts: the Uniform Transfers to Minors Act (UTMA) and the Uniform Gift to Minors Act
(UGMA). The UTMA allows parents to postpone distributions, but age limits vary by state. However, the UGMA allows parents to give funds to their
child in the form of money, life insurance, savings bonds, stocks or annuities etc..
When opening a new custodial account, you have plenty of options from investment brokerages, banks, and other financial institutions. In most
cases, you will want an investment account. That gives you the ability to invest funds for the minor’s benefit, which can have much higher returns
than a bank account with limited interest. So how do you decide which account is best for your family
Once again: A custodial account is a financial account held in the name of a minor, usually by a parent, legal guardian, or another relative. If you are a
parent or guardian of a young person, this gives you the opportunity to save and invest for your child while retaining full control of the account until
they reach adulthood.
This kind of account provides you with maximum flexibility in how you choose to invest and use the funds. Custodial accounts in the United States
are regulated by the Uniform Transfers to Minors Act (UTMA) and Universal Gifts to Minors Act (UGMA)
----------
Custodial Account
How to Open a Custodial Account for Your Child
How to Save Money for Your Child With a Custodial Account
IT’S A SMART MOVE TO SET ASIDE MONEY FOR BABY’S FUTURE—AND A CUSTODIAL ACCOUNT CAN HELP YOU DO THAT. HERE’S WHAT YOU
NEED TO KNOW ABOUT OPENING A CUSTODIAL SAVINGS ACCOUNT.
A custodial account is a savings account set up and administered by an adult for a minor.
Custodial accounts have enormous flexibility with no income or contribution limits, or withdrawal penalties.
Custodial accounts do not require distributions at any point.
Gifts to a custodial account are irrevocable.
The account's holdings irrevocably pass into the minor's control when they come of age depending on their state of residence
-------------
How to Open a Custodial Account for Your Child ... We all want the best for our kids—so when it comes to planning for baby’s financial future, parents
are eager to set aside money for their children to access down the line. Many parents opt to open a simple savings account to stash all the monetary
birthday gifts that will trickle in through the years.
And there’s nothing wrong with that—there’s no risk of losing the money, and your bank probably pays a little bit of interest over time. But what if you
could possibly grow your child’s money over the next decade or so?
A custodial account, which allows parents to invest their kids’ cash in mutual funds, stocks, bonds and exchange-traded funds (ETFs), can be a way
to increase the money over time and see returns on your balance. Here’s everything you need to know about setting up a custodial account for baby
------------
Florida is among a few states that allow UTMA accounts to remain intact until the minor reaches age 25, but only if the transferor clearly expresses an
intent for the account to continue for the longer period. Importantly, when the minor turns 21, the conservator must provide the (now former) minor
with notice of his or her right to withdraw assets and close the account, and then the minor has a 30-day window to claim the property.
Because transfers are irrevocable, assets in an UTMA account are generally removed from the transferor’s taxable estate. However, if the transferor
also acts as the conservator and dies before the minor takes control of the assets, the account value will be included within the taxable estate.
Because student assets are not subject to the larger asset allowance of parental assets, a UTMA transfer can potentially have a negative effect on
financial aid eligibility. Of course, property held in trust for a minor usually counts as a student asset as well.
Another limitation of UTMA accounts is that they can only have one beneficiary. If you have more than one minor in mind, it’s simple enough to
establish multiple accounts for easily divisible assets like cash. For assets that are more difficult to partition, such as real estate, you will probably
need a trust if you want to earmark property to benefit more than one minor.
-------------
Custodial Account Benefits
The biggest advantages of custodial savings accounts revolve around accessibility. Anyone—whether it’s a parent, grandparent, aunt or other—can
open a custodial account; that person can then contribute to it without any limits on the amount they put in.
They can choose to invest the cash in whatever investment assets their bank offers. “A custodial account offers a lot more flexibility, and you’re
kicking off your child’s financial future in an amazing way
===========
How custodial account funds may be used
As long as the child is a minor, the custodian can use the money in the account for purposes that benefit the child, as determined by state law. The
custodian should keep a detailed accounting of these expenditures in case questions arise later. While rare, a child could sue a custodian if misuse of
funds is suspected.
The account’s custodian can be the same person who donates the funds to the child or a different person. For example, a parent could be both the
account’s donor and its custodian, or a grandparent could be a donor and name the parent as custodian. The choice of custodian may have estate tax
implications that donors should discuss with their accountants or financial professionals.
Some of the more useful features of custodial accounts are:
They are easier to establish than trusts.
The money can be held in cash or invested in stocks, bonds, mutual funds, and potentially other assets as allowed by state law.
Investment earnings may be taxed at the child’s rate, which may be lower than the donor’s rate.
They provide flexibility because the money doesn’t have to be used for a specific purpose, such as education.
Donors can contribute as much as they want and can contribute cash, securities, or other assets.
But there are some constricting features as well:
The custodian must use the money only for the child’s benefit.
The child, regardless of his or her behavioral maturity, will gain full control over the entire account balance at their age of majority, typically 18 or 21.
A child’s assets count heavily against college financial aid.
The donor’s gifts to the account are irrevocable.
There may be federal gift tax consequences for contributions of more than $15,000 per donee per year
- Custodial Account: A custodial Account is a financial account such as a bank account, a trust fund or a brokerage account) set up for the benefit of
a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary
Custodial Account For A Minor ...
What is a custodial account? This simple way to transfer property to a minor is called a Uniform Transfer to Minors (UTMA) or Uniform Gift to Minors
(UGMA) transfer depending in which state the minor resides. Income eligibility restrictions
===============
===========Custodial accounts
Custodial accounts can be thought of as a type of trust account, and are used to save money for children, their beneficiaries. These accounts are set
up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).
Custodial accounts allow minors under—generally defined as someone under the age of 18—to own an account without the burden of handling the
assets. The responsibility of managing the account falls to the custodian. Custodians are usually the parents or appointed guardians.
Custodial accounts can help teach young people investing and money management basics, by allowing custodians to show them what goes into
investing.
'Custodial Account'. There are two types of custodial accounts: the Uniform Transfers to Minors Act (UTMA) and the Uniform Gift to Minors Act
(UGMA). The UTMA allows parents to postpone distributions, but age limits vary by state. However, the UGMA allows parents to give funds to their
child in the form of money, life insurance, savings bonds, stocks or annuities etc..
When opening a new custodial account, you have plenty of options from investment brokerages, banks, and other financial institutions. In most
cases, you will want an investment account. That gives you the ability to invest funds for the minor’s benefit, which can have much higher returns
than a bank account with limited interest. So how do you decide which account is best for your family
Once again: A custodial account is a financial account held in the name of a minor, usually by a parent, legal guardian, or another relative. If you are a
parent or guardian of a young person, this gives you the opportunity to save and invest for your child while retaining full control of the account until
they reach adulthood.
This kind of account provides you with maximum flexibility in how you choose to invest and use the funds. Custodial accounts in the United States
are regulated by the Uniform Transfers to Minors Act (UTMA) and Universal Gifts to Minors Act (UGMA)
----------
Custodial Account
How to Open a Custodial Account for Your Child
How to Save Money for Your Child With a Custodial Account
IT’S A SMART MOVE TO SET ASIDE MONEY FOR BABY’S FUTURE—AND A CUSTODIAL ACCOUNT CAN HELP YOU DO THAT. HERE’S WHAT YOU
NEED TO KNOW ABOUT OPENING A CUSTODIAL SAVINGS ACCOUNT.
A custodial account is a savings account set up and administered by an adult for a minor.
Custodial accounts have enormous flexibility with no income or contribution limits, or withdrawal penalties.
Custodial accounts do not require distributions at any point.
Gifts to a custodial account are irrevocable.
The account's holdings irrevocably pass into the minor's control when they come of age depending on their state of residence
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How to Open a Custodial Account for Your Child ... We all want the best for our kids—so when it comes to planning for baby’s financial future, parents
are eager to set aside money for their children to access down the line. Many parents opt to open a simple savings account to stash all the monetary
birthday gifts that will trickle in through the years.
And there’s nothing wrong with that—there’s no risk of losing the money, and your bank probably pays a little bit of interest over time. But what if you
could possibly grow your child’s money over the next decade or so?
A custodial account, which allows parents to invest their kids’ cash in mutual funds, stocks, bonds and exchange-traded funds (ETFs), can be a way
to increase the money over time and see returns on your balance. Here’s everything you need to know about setting up a custodial account for baby
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Florida is among a few states that allow UTMA accounts to remain intact until the minor reaches age 25, but only if the transferor clearly expresses an
intent for the account to continue for the longer period. Importantly, when the minor turns 21, the conservator must provide the (now former) minor
with notice of his or her right to withdraw assets and close the account, and then the minor has a 30-day window to claim the property.
Because transfers are irrevocable, assets in an UTMA account are generally removed from the transferor’s taxable estate. However, if the transferor
also acts as the conservator and dies before the minor takes control of the assets, the account value will be included within the taxable estate.
Because student assets are not subject to the larger asset allowance of parental assets, a UTMA transfer can potentially have a negative effect on
financial aid eligibility. Of course, property held in trust for a minor usually counts as a student asset as well.
Another limitation of UTMA accounts is that they can only have one beneficiary. If you have more than one minor in mind, it’s simple enough to
establish multiple accounts for easily divisible assets like cash. For assets that are more difficult to partition, such as real estate, you will probably
need a trust if you want to earmark property to benefit more than one minor.
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Custodial Account Benefits
The biggest advantages of custodial savings accounts revolve around accessibility. Anyone—whether it’s a parent, grandparent, aunt or other—can
open a custodial account; that person can then contribute to it without any limits on the amount they put in.
They can choose to invest the cash in whatever investment assets their bank offers. “A custodial account offers a lot more flexibility, and you’re
kicking off your child’s financial future in an amazing way
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How custodial account funds may be used
As long as the child is a minor, the custodian can use the money in the account for purposes that benefit the child, as determined by state law. The
custodian should keep a detailed accounting of these expenditures in case questions arise later. While rare, a child could sue a custodian if misuse of
funds is suspected.
The account’s custodian can be the same person who donates the funds to the child or a different person. For example, a parent could be both the
account’s donor and its custodian, or a grandparent could be a donor and name the parent as custodian. The choice of custodian may have estate tax
implications that donors should discuss with their accountants or financial professionals.
Some of the more useful features of custodial accounts are:
They are easier to establish than trusts.
The money can be held in cash or invested in stocks, bonds, mutual funds, and potentially other assets as allowed by state law.
Investment earnings may be taxed at the child’s rate, which may be lower than the donor’s rate.
They provide flexibility because the money doesn’t have to be used for a specific purpose, such as education.
Donors can contribute as much as they want and can contribute cash, securities, or other assets.
But there are some constricting features as well:
The custodian must use the money only for the child’s benefit.
The child, regardless of his or her behavioral maturity, will gain full control over the entire account balance at their age of majority, typically 18 or 21.
A child’s assets count heavily against college financial aid.
The donor’s gifts to the account are irrevocable.
There may be federal gift tax consequences for contributions of more than $15,000 per donee per year