Direct vs Indirect Investing
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Direct versus Indirect Investing: What’s In It for Me?
Beth Blackaby
Axia College University of Phoenix
What is the best approach to investing? When beginning to invest, we all may take a different approach. Investors always have the option of direct investing, making their own buy and sell decisions, typically through a brokerage account (Bidlisiw, 2008). Direct investing allows the investor to make decisions for them. Indirect investing allows the investor to hold assets through pension funds and mutual funds. This is where they hire a manager or an organization to do the investing for them. The investment company or pension fund owns a portfolio of securities, and the shareholders of the investment company or the beneficiaries of the pension fund indirectly own the portfolio of securities (Bidlisiw, 2008). With each type of investing, direct and indirect investing, there are different types of investments that the individual investor must choose, each with their own liability of risk and return.
There are several different types of investments available when the direct investing approach is taken. Saving Deposits, Treasury Bills (T-Bills), U.S. Savings Bonds, preferred stocks, and common stocks are all direct investments that investors may choose. Each investment has different risk involved when choosing that particular investment, but investors can buy and sell the securities themselves. They have direct control over them.
Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount (also called face value). For instance, you might pay $990 for a $1,000 bill. When the bill matures, you would be paid $1,000. The difference between the purchase price and face value is interest. It is possible for a bill auction to result in a price equal to par, which means that Treasury will issue and redeem the securities at par value (Treasury Direct, 2009). An example is...
Beth Blackaby
Axia College University of Phoenix
What is the best approach to investing? When beginning to invest, we all may take a different approach. Investors always have the option of direct investing, making their own buy and sell decisions, typically through a brokerage account (Bidlisiw, 2008). Direct investing allows the investor to make decisions for them. Indirect investing allows the investor to hold assets through pension funds and mutual funds. This is where they hire a manager or an organization to do the investing for them. The investment company or pension fund owns a portfolio of securities, and the shareholders of the investment company or the beneficiaries of the pension fund indirectly own the portfolio of securities (Bidlisiw, 2008). With each type of investing, direct and indirect investing, there are different types of investments that the individual investor must choose, each with their own liability of risk and return.
There are several different types of investments available when the direct investing approach is taken. Saving Deposits, Treasury Bills (T-Bills), U.S. Savings Bonds, preferred stocks, and common stocks are all direct investments that investors may choose. Each investment has different risk involved when choosing that particular investment, but investors can buy and sell the securities themselves. They have direct control over them.
Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount (also called face value). For instance, you might pay $990 for a $1,000 bill. When the bill matures, you would be paid $1,000. The difference between the purchase price and face value is interest. It is possible for a bill auction to result in a price equal to par, which means that Treasury will issue and redeem the securities at par value (Treasury Direct, 2009). An example is...