Investing Terms: Types of Investment Structures (Part 1)

Reviewing the different investment structures that you can use to hold your assets is an integral part of investing. You should be able to tell whether you’ll be holding an asset under a person’s name – as an individual or jointly – or in a trust, or a company. This will depend on your own specific situation as well as the goal that you would want to achieve.

Here are some of the important terms to remember when it comes to the types of investment structures.

Exchanged Traded Funds
This is also known as ETFs. These funds are marketable securities which track an index, a commodity, bonds, or something like an index fund. Unlike mutual funds though, an ETF trades the same way a common stock on a stock exchange does. ETFs experience fluctuations throughout the day as they are bought and sold.

Some cases can show you that ETFs have their own advantages when it comes to taxes, but mostly, the benefits in ETFs are in the form of a triumph of marketing over substance. ETFs usually have higher daily liquidity and lower fees which makes them attractive for individual investors who are looking for alternative funds.

Index Funds
This is not a distinct or special type of fund. It’s more of an ordinary mutual fund that sometimes get to trade as an ETF. The portfolio of an index fund is made to match or track that of a market index’s components, such as the S&P 500. This is done to provide low operating expenses, low portfolio turnover, and broad market exposure. This kind of funds must stick to specific rules or standards which stay in place regardless of the state of the markets.

Index funds will give the designer of the index the opportunity to manage the fund effectively through the use of the methodology the fund’s portfolio manager uses when it comes to buying or selling investments.

Hedge Funds
These are alternative investments which uses pooled funds that employ several different strategies in order to earn active returns for their investors. It is a private equity which was mostly a limited partnership but more often a limited liability company in the olden times.

Hedge funds can make use of derivatives and leverage in both domestic and international markets, setting its sights on generating high returns. Or it can also be manages aggressively. Note that these kind of funds are mostly accessible to accredited investors due to them requiring less SEC regulations compared to other funds. They face lesser regulations than that of mutual funds and other investment vehicles, setting them apart from the usual funds.

And that's it for the first part of the terms you need to know when it comes to the types of investment structures you could invest in.

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