Types of Investment Accounts

By: Ryan Cockerham | Reviewed by: Ashley Donohoe, MBA | Updated March 26, 2019

An investment account, also commonly referred to as a brokerage account, is a financial platform created by a brokerage firm in order to provide an individual investor with the means to convert financial capital into various investment vehicles. Although the account is created by a brokerage firm, any assets that are deposited into the account by the investor remain the exclusive property of this individual throughout the lifespan of the account. There are a variety of investment account options available to individuals today. Understanding the differences between these various accounts can help you determine which specific tool is most appropriate for your own needs.

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The two common categories of investment accounts available today include full-service accounts and discount accounts. Whereas a full-service account offers investors access to insight and account management from certified investment professionals, these benefits require monthly premium payments. A discount investment account can be opened and utilized in a much more budget-friendly way, although the knowledge and experience of professional investors is often not included.

Exploring Types of Investment Accounts Today

Generally speaking, investment accounts are broadly categorized into two distinct formats, those being full-service accounts and discount accounts. The primary difference between these two formats is the amount of third-party assistance provided to the investor by the brokerage itself.

With full-service accounts, investors will often pay a monthly premium in exchange for insight and recommendations from investment professionals. High net worth investors may be able to benefit from wealth management services offered as part of a full-service account. On the other end of the spectrum, newly minted investors can leverage the knowledge of the seasoned investors managing their account in order to ensure that they invest their funds with optimal efficiency.

Investors who are also accredited by federal regulators may also be able to use a full-service account in order to gain access to highly lucrative IPOs and other exclusive market offerings. In a situation such as this, the premiums that must be paid to leverage these services will easily be paid for through the potential profits available to these individuals.

The Basics of Discount Investment Accounts

The primary benefit of a discount account is the relative affordability of accessing these services compared to full-service accounts. Although discount investment accounts rarely include the types of helpful services provided by full-service accounts, investors will not be required to pay the same monthly premiums. With this in mind, confident investors can take the funds that would have otherwise been routed into premium payments and route them directly back into their personal investment plans.

Online Discount Investment Accounts

If you are familiar with brokerage services such as Charles Schwab, Vanguard or Fidelity, then you are acquainted with some of the more popular online discount brokerage services available today. A Vanguard account, Fidelity investment account or virtually any other online investment account accessible by retail investors provides access to the marketplace in exchange for low fees and affordable per-trade commission rates.

In fact, the growing number of online brokerage services in operation today has created steadily increasing downward price pressure on these companies, resulting in even more advantageous offers for new investors. As an example, the relatively new brokerage service Robinhood offers a zero-commission policy for investors.

In exchange for these extremely budget-friendly policies, however, investors will likely not be able to leverage the expertise of professional investors as easily. With that in mind, amateur investors may discover that their overall profit would have been greater if they chose to pay a premium for professional advice and oversight rather than just "winging it." There is, of course no guarantee when it comes to any form of market trading. That being said, the advice offered by expert investors as part of full-service accounts could prove to be invaluable for those who are willing to pay for it.

Assessing Available Investment Opportunities

With virtually all of the accounts described previously, investors will have access to a wide array of potential investments, such as stocks, bonds, FOREX, IRAs, etc. In some situations, more niche trading platforms could require investors to pay an additional premium to gain access. This is a decision that is left entirely up to the brokerage firm in question, however. With that in mind, investors should thoroughly research all available service providers before opening their own account.

Some brokerage firms may also allow individuals to open a joint brokerage account as opposed to an individual investment account. Understanding the differences between an individual brokerage account vs. joint brokerage account may be worth your time if your specific investment plans deviate from the most common forms of investing.

Whatever your specific needs may be, however, the chances are quite good that the investment accounts available for use today will provide you with rapid access to the investment options you seek.

Moving Forward With Your Investment Plans

The first step to choosing an investment account is to determine precisely what your goals and objectives are over both the short term and long term. For example, are you hoping to open an investment account as part of retirement preparation? Or, are you seeking to gain access to a broad array of investments as part of a diverse strategy that you will sustain and modify over the next several decades? When it comes to specific investment tools, are you more interested in buying and selling futures contracts, or are you hoping to invest in more traditional securities?

As an investor, are you planning on actively trading stocks and other assets throughout the day, or are you a more passive investor who is planning to establish long positions in various assets? Are you an experienced investor, or are you taking your first steps into this dynamic environment?

As you can see, questions such as these will have a significant and fundamental impact on the type of account you choose to open. While most of the brokerage services mentioned here include access to the myriad of investment activities available today, some are more specifically catered to individual investor profiles. With that in mind, you could find yourself overpaying for specific services that other brokerage firms offer for substantially less cost.

Making Your Investment Decisions

Take the time you need to fully assess, explore and compare all of the options available to you before you begin trading. While most of your questions will likely be answered via the extensive documentation included on these brokerage firm's websites, you can also contact representatives of the services directly in order to ask more specific questions.

Until you are absolutely certain that you have found a service that matches your needs, do not open an account. Your future investment success and your wallet will thank you for the time and effort you put in at this foundational stage of the process. Also, stay abreast of current financial news and updates in order to be aware of new investment account options that may be popping up throughout the year.

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About the Author

Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.

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