Asset Management 101

which permits the creation of “financial services” firms. Endowed with the powers to engage in various banking, brokerage, and insurance activities, these firms created asset management accounts in order to attract customers.

TIP: If you want to deal with a single financial institution only for all of your banking and brokerage needs, an asset management account may be the ideal solution.

Here’s how they work. When you make a deposit, the proceeds are automatically swept into an interest-earning money market fund. You can write a check or use your debit card to automatically access the cash, just like a regular bank account. You can also go online or call your bank and purchase stocks, bonds, mutual funds, real estate investment trusts, and most other investments. At the end of the month, you will receive a single, consolidated statement detailing all of your transactions, both banking and brokerage.

There are a few downsides. Most asset management accounts have higher minimum opening balance requirements (e.g., $15,000 vs. $1,000 for a regular brokerage account). Also, the fees and commissions tend to reside somewhere between those charged by traditional and discount brokers; not bad at all if you value the services and convenience it affords.

Miscellaneous Tips

· Although Wall Street is a literal place in Manhattan, the term is used as a reference to the investment community at large.

· A bull is someone who believes prices are going to increase; a bear, someone who believes prices are going to decrease.

· The Federal Reserve manipulates interest rates in two ways: by increasing or decreasing the discount rate, which is the rate banks pay when they borrow directly from the Fed, and by indirectly affecting the funds rate which is the rate that banks charge each other by adjusting the required ratio between reserves and deposits.

· The buy-side consists of those engaged in money management; the sell-side, underwriting.

· The primary responsibility of the SEC is to preserve the integrity of the financial markets.

· Before you open a brokerage account, you should check and see if the broker and brokerage firm, respectively, are licensed and part of the Securities Investor Protection Corporation.

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Tags: investing, stocks

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