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Question about brokerage accounts

Andy Daniels

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Hey all,

I just re-read the chapter in TMF outlining how to calculate your money system and business system target because I wanted to get it on paper so I can see it everyday. Turns out my targets are pretty damn high.. but hey! That's the lifestyle I want, time to go get it.

Anyway, @MJ DeMarco mentioned that he recommends funding your money system at a brokerage firm. Now, I don't know too much about these kinds of accounts. Could someone explain them to me? I'm mostly just concerned about risk and how liable my money would be.

I've read really mixed reviews on brokerage accounts, so I could just use some clarification.

Thanks!
 
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mike24601

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There are many brokerage firms out there, Charles Schwab and Vanguard are two of the top tier firms that offer a wide variety of products. They have mutual funds, ETFs, various bond funds, REITS, and so on. There is always risk involved with any investment, but the degree of risk you take will determine your average return (usually). The higher the average return, the riskier the investment pool that makes up your fund is going to be. Vanguard offers LOTS of funds, some are very new and some are very old.

For example, Vanguard's Wellington Fund was started in 1929 and is a mix of old guard companies, blue chip stocks, bonds, and individual reserves. It has 87 years of market data available to make a fairly accurate standard return estimate. But of course, any time a market downturn occurs, you are going to take a hit. In 2008, many accounts lost half of their value and have since recouped that 100% and more. As a rule of thumb, government bonds and securities are much less risky but, you can decide if that's true or not on your own.

Protection wise, MJ recommends keeping your assets easily accessible and returnable to liquid cash "in the snap of a finger." It won't be that quick, usually, but if you CANT get your money out when the SHTF, you will be in trouble.
 
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