Have you ever wanted to ask, “What is a Jual Suplemen Fitness account?” but were too scared? You hear about brokerage accounts on the news. You know that many successful people have them. How do they work? What are the benefits and drawbacks? Why should you open one? My goal in the next few minutes is to answer those questions and more so you have a solid understanding of not only what a brokerage account is, but how it works, what you should expect once you have one, and the types of investments they can hold.
What Is a Jual Suplemen Fitness Account? Understanding the Basic Definition
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 Is the Difference Between a Cash Brokerage Account and a Margin Brokerage Account
When you open a brokerage account, you have to pick between a so-called cash and margin account type. A cash brokerage account is one that requires you to deposit cash and securities, in full, by settlement, in order to engage in transactions. The brokerage firm won’t lend you any money. For example, if the trade settlement on your stock is three business days, and you sell your stock today, even though the cash appears in your account right away, you can’t actually make a withdrawal until it is really there after settlement. A margin account, on the other hand, allows you to borrow against certain assets in the brokerage account with the broker lending you money in exchange for what is usually a low interest rate.
I typically suggest people seriously consider investing through a cash brokerage account for several reasons. First, I’m slightly concerned that rehypothecation could be a major investment disaster.
It’s an esoteric topic but one that you should learn about if you have a margin brokerage account. Second, margin brokerage accounts can result in some weird things happening with the way you collect dividends on your stocks. If things don’t work out exactly right, you might not qualify for the super-low dividend tax rates and, instead, be forced to pay ordinary tax rates which can be roughly double. Third, no matter how well you think you’ve thought a position through, using margin can end in life-altering disaster. For example, late last year, I did a case study on my personal blog of a guy who went to bed with tens of thousands of dollars in net equity in his brokerage account and woke up to find he owed his broker $106,445.56. Many other individuals and families lost huge portions of their life savings, and in many cases, their entire liquid net worth or more, by purchasing shares of a company called GT Advanced Technologies on margin. It’s not worth it. It’s simple enough to get rich if you have a long enough period of time and you let compounding work its magic. I think it is a grave mistake to try to speed up the process to the point you risk destroying what you’ve built.
For what it’s worth, this is one of those areas where I put my money where my mouth is. I feel so strongly about it that in all but the most remote circumstances for very specific type of investors, Kennon-Green & Co., my global asset management company, will require discretionary individually managed accounts to be held in cash-only custody. I don’t care if widespread utilization of margin could make the firm more money due to the larger asset base on which we can charge investment advisory fees, the particular brand value investing, dividend investing, and passive investing we practice doesn’t lend itself to borrowed money. It’s a foolish risk and I want nothing to do with it.