If you are in college and looking to begin your investing, the first thing you need to do is find a reputable brokerage firm and open your new brokerage account. Investing cannot be done with your standard banking institution, but at a brokerage firm such as Fidelity, Charles Schwab, E*TRADE, and these are just a few. But what kind of account is best for you? There are several options to choose from, once you find the right platform.
Cash Account: The most basic account with any type of security for your cash on hand. Many new investors prefer this option, if they want freedom and access to their money before retirement.
Margin Account: With this type of account you can borrow money to invest, unlike a cash account. A margin account also allows for shorting investments and selling uncovered options.
Traditional IRA: When it comes to retirement accounts, this is the typical choice. Like a cash account, you can purchase with the cash on hand. However, you have a limit – you cannot withdraw money until you are 59 ½ years old. You will receive a tax benefit on everything up to the limit. You will have to pay taxes on any money that you withdraw once you do retire.
Roth IRA: This is like a Traditional IRA, except without the tax benefits. However, at retirement all of your withdrawals will be tax-free.
So, the question is what is the best choice for you? If you are looking for a flexible option that won’t tie up your money for the next 40 years, a cash account would be the right fit. But if you are planning for retirement, early and save for it now, a Roth IRA is the right direction. A financial guide or advisor is another avenue you could go to ensure your decisions are sustainable and financially sound.