For someone just starting out in the business realm, comprehending the world of investments and stocks can be quite daunting. It is well said that knowledge is the key to power. Indeed, educating yourself is the only way to stay afloat in the ever-changing tides of business. According to William Schantz, when investing your money, there are a few different routes that you can take. You can go the traditional route and invest in stocks, bonds, and other securities. Or, you can open a brokerage account and have someone else do the work for you.
Regarding retirement savings, there are two main types of accounts: a traditional IRA and a Roth IRA. Both have their own benefits and drawbacks, so it’s important to understand the difference between them before making a decision.
Brokerage Account vs IRAs
What Is A Brokerage Account?
A brokerage account is a type of investment account that a broker manages. A broker is someone who buys and sells securities on behalf of their clients. When you open a brokerage account, you will deposit money into the account and then use that money to purchase securities, such as stocks, bonds, and ETFs.
The benefit of using a brokerage account is that it allows you to invest in various assets. You are not limited to only stocks or only bonds; you can choose from a variety of investments and mix and match to create a portfolio that fits your needs.
Another benefit of using a brokerage account is that it allows you to use leverage. Leverage is when you borrow money from your broker in order to purchase more securities. This can be a great way to increase your returns, but it can also be a risky move if the market takes a turn for the worse.
The downside of using a brokerage account is that you will have to pay fees to your broker. These fees can eat into your profits and should be considered when making investment decisions.
What is an IRA?
According to William Schantz, an IRA, or Individual Retirement Account, is a type of retirement account that allows you to save for retirement on a tax-advantaged basis. There are two main types of IRAs: traditional IRAs and Roth IRAs.
Traditional IRAs offer tax breaks on the money you contribute to the account. This means you will not have to pay taxes on the funds until you withdraw them in retirement. Roth IRAs offer no up-front tax breaks, but you will not have to pay taxes on the money when you withdraw it in retirement.
The benefit of using an IRA is that it allows you to save for retirement on a tax-advantaged basis. This means that your money will grow faster because you will not have to pay taxes on it until you retire.
The downside of using an IRA is that there are contribution limits. For 2019, the contribution limit for traditional and Roth IRAs is $6,000. You can only contribute $6,000 per year to your IRA. If you want to save more, you will need to open a brokerage account.
The bottom line
William Schantz points out that brokerage accounts and IRAs offer their own benefits and drawbacks. Understanding the difference between the two is essential before deciding how to invest your money. If you want to have the most flexibility when it comes to investing, a brokerage account is a way to go. An IRA might be a better option if you are primarily interested in saving for retirement.