Without further ado, here’s the second half of the terms you
need to know when dealing with the types of investment structures.
Master Limited
Partnerships
These are most often known as MLPs. They are limited partnerships
that trade just like stocks. You should be avoiding MLPs if you’re a beginner
or generally doesn’t know what you’re doing yet. MLPs have unique tax treatment
and are surrounded with complicated rules.
If you are not able to manage the MLPs properly, the tax
consequences can be devastating, especially in retirement accounts.
Mutual Funds
Basically, a mutual fund is a pooled portfolio. You, as an
investor, buy shares or units in a trust. The money will then be invested by a
professional portfolio manager. Individual stock are held by the fund, at least
when it comes equity funds, or bonds. With bond funds, the investors in the
mutual fund will be receiving annual reports every year. These reports contain
details about the owned investments, capital gains, generated income, and a lot
more.
Mutual funds don’t trade the whole day. This is mostly to
avoid people who take advantage in the underlying net asset value.
Buy and sell orders in mutual funds are collected all day
and when the markets close. They are then done through final value calculation
for that specific trading day.
REITs
This is known as the Real Estate Investment Trusts. Some of
the investors usually buy real estate through this system. REITs trade the way stocks
do, they also have special tax treatment. There are various types of REITs
which also have different specialization in real estate. An example of this is
a hotel REIT, which will be good for you if you’re interested in hotel
properties.
Trust Funds
These are a special kind of entity when it comes to the
legal system. It allows you to have incredible asset protection benefits as
well as tax benefits when it is structured intelligently. Trust funds can
include almost any kind of asset there is, ranging from stocks, real estate,
and bonds to hedge funds, mutual funds, productive farms and art.
But just like everything else, there is still a downside. In
the case of trust funds, it can be seen in the tax rates that are compressed on
income which isn’t spread out to the beneficiary. This is to prevent huge
accumulations of capital which can lead to another aristocracy.
This means that the Federal, state and local governments
will be able take a huge chunk out of you if you trust funds are not planned
strategically and carefully.
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