An investment structure simply talks about the legal ownership of your investments. At this point, you will already know that there are different kinds of investments and fundamentally different vehicles through which you can achieve your different investment objectives.
There are also different ways to invest in these various classes of assets. For example, when investing in stocks, you can purchase and manage the shares yourself. However, you might also do so through a mutual fund where you pay a fee to have a professional carry this out for you. This is basically what investment structures are about.
Critical Investment Structures You Should Know
Direct Ownership – This is the most common investment structure available. In an investment like real estate, it could mean that you own the real estate assets directly.
Mutual Funds – Another common investment structure. It represents a fund pooled together by a group of investors. Mostly these investors have the same goal or objective. Thus, they can easily manage their funds together. Investors buy shares or units in a fund, and the money is invested by a professional portfolio manager.
Mutual funds do not trade throughout the day to avoid allowing people to take advantage of the underlying change in net asset value. Mutual funds are a great way to get exposure to different groups of stocks or bonds.
Portfolio Management – Professionals and experts who strategically manage and group different types of assets into portfolios they manage to generate a profit for investors and their clients.
Investment Mandate – An Investment Mandate is a set of guidelines, rules, and objectives used to manage a specific portfolio or pool of capital.
Exchange-Traded Funds – also known as ETFs are very similar to mutual funds, except that they trade throughout the day on stock exchanges as if they were stocks. One can quickly pay more or less than the value of the underlying holdings in the fund. ETFs might have certain tax advantages.
Index Funds – Individuals invest in a stock index. If you don’t know, a stock index is a measurement of a section of the stock market. The design of Index Funds is to give investors returns that are in line with the index.
Investment Strategy Terms
An investment strategy may include grouped classes of assets. Here are some terms that you need to know. Asset classes have different characteristics and behavior patterns. Following the investor’s goals and risk tolerance, getting the right mix for a specific investor can increase the probability of a successful outcome.
Asset Allocation – An approach for capital management that usually involves setting parameters for different assets, asset classes, ownership stocks, real estate, fixed-income, or commodities.
Asset Management Company – This is a business than invests its capital on behalf of its clients, partners, and other shareholders.
Master Limited Partnerships – Master limited partnerships (MLPs) are limited companies that trade similarly to stocks. They offer unique tax treatment; however, complex rules are surrounding them. Inexperienced investors should generally avoid investing in MLPs.
Custodial Account – This is an account that an institutional custodian operates on behalf of an investor. Usually, the custodian will record and transcript cash flows from interest and dividends. Custody accounts are assessed custodial fees. However, some investors don’t know that they can pay them because brokers may offer custody services for free or at reduced prices. We hope this brief overview of essential investment terms will help you out in your future trading and investment career. Remember, take your time and make your way to earning profits by studying diligently everyday!