Broker Check

Monday Money Report

| October 12, 2020

Last week the markets saw a sharp increase, based on hopes of additional stimulus and expected positive earnings reports next year.  Total unemployment also continues to decline. 

And we see questions coming in asking about the difference between investments and the type of account that holds the investments. Investments can be many different things, but are generally broken down into three things: stocks, bonds, and alternatives. Stock is ownership in a company.  If you have a share of XYZ Widgets, your investment increases – or decreases – with the value of the company.  You may also receive dividends, or a piece of the profit the company makes.  Bonds are debt issued by a company or government entity.  You receive interest payments, generally every six months, and then are eventually repaid the principal. Keep in mind that, while bonds are generally safer than stocks, if whoever issued the bond goes under, you can lose your investment.

Most investors don’t own individual stocks and bonds, though.  No matter how you’re investing, most of us own mutual funds, which are professionally managed funds.  The fund hires a manager to buy and sell stocks and bonds, usually with a specific mandate.  For example, it might be a fund that invests in large US companies, or the bonds of companies in emerging economies, like India or Turkey.  This allows you to benefit from professional management, and diversify your holdings with a relatively small investment.  It also allows you to buy partial shares, rather than saving up to buy one share of a particular stock.

The third category is much more expansive, but alternatives are generally any investment that is not a stock or bond.  Real estate, commodities, options, and so on.  Most of these are limited to larger investors, because they are higher risk and may not be liquid.

Then you have the type of account.  There are two basic categories: qualified, and non-qualified.  Qualified accounts are accounts that qualify for special tax treatment from the IRS.  Individual Retirement Accounts, or IRAs, Roth IRAs, and your employer-sponsored retirement plans are all qualified accounts.  Non-qualified accounts are just investment accounts that are taxed as you go along.  Your IRA can hold stocks, bonds, or alternatives.  Same with the non-qualified account. 

Which account type you choose is going to depend on the reason you’re investing – is this for retirement, college, or a second home?  Diversification applies not just to the underlying investments, but also to account type.    

With that in mind, October is Financial Planning Month.  I firmly believe that everyone can benefit from working with a financial planner. Our lives have become increasingly complex with investments, insurance, mortgages and taxes all playing a part.  We’re here to help.  Check out our website at, or visit our Facebook page to learn about our line-up of educational events.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses. There is no guarantee that a diversified portfolio will enhance overall returns or out-perform a non-diversified portfolio. Diversification does not protect against market risk.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.