Investment accounting records all Institute investment transactions and monitors related custodian accounts. Investment accounting is responsible for activity in the pooled endowment and all separately held portfolios. Investment accounting provides reporting to senior management and works closely with the Treasurer’s Office.
In contrast to the regular savings accounts, which involve no risk to your capital – assuming that the bank does not file bankruptcy, investment accounts, for e.g. stock market-linked accounts, entail significantly more risk. If you wish to increase the value of your capital at a higher rate than the interest rate offered by your bank, then you need to consider investment. Investment accounts use your capital to buy stocks and shares in the stock market or buy into goods and services, which are expected to rise in value over a period of time, such as property.
There are a variety of investment possibilities in investment accounting, each with different terms, conditions, considerations and risk. The main types of investment accounts are:
- Stakeholder Pension Schemes
- Investment Funds
- Child Trust Funds
- Hedge Funds
- ISA’s
- Property investment
You can combine one or more of the above possibilities in investment accounting to create a balanced portfolio or consider options in accordance of your age, personal or financial situation than others.
Investment accounting is very risky and it is somewhat unlikely, that you will end up making fast returns from an investment account; therefore any investment should be seen as a long-term opportunity in investment accounting and not an instant money-making scheme. A long-term investment of your funds gives your capital the chance to ride out the short-term stock market fluctuations, increasing the chances of your capital to be able to benefit from significant investment returns. Investing your money in a long-term prospect however with investment accounts does mean that it can not be instantly accessible during an emergency situation. You may face penalties if you wish to reduce the investment term of your investment account.
No savings or investment scheme is 100% secure or guaranteed. There is always a chance that the financial institution with which you bank, could file for bankruptcy, your pension scheme could close down or the stock market could crash. Some savings and investment accounts offer people a reasonable level of security, such as guaranteed capital return and an interest rate, 1% higher than the Bank of England’s basic rate. However, usually an investment account involves a significant amount of risk and it is rare that your capital is fully secure. Your capital will be often unsecured in an investment account, but in exchange you will have the chance to make excellent returns on your investment.
According to previous trends related to investment accounting, invested capital produces better returns than capital deposited in a regular savings account, but then of course, the historical data cannot predict the future and thus there is no guarantee of returns.
Before you decide to invest your money with investment accounting, you need to consider the amount of risk that you are willing to undertake and also the way in which you wish to receive any returns you make. If you are not in the position or cannot afford to lose any of your capital or if you are not prepared to invest your capital for a long period of time, then investment accounting may not be the best option for you because of the high risk factor involved.
It is important that you remember the strict terms and conditions associated with investment accounts: it is not usually possible to access your money at short notice; there is no guarantee of returns and no guarantee that you will not lose all of your money. If you do not have a lot of savings or if you are too concerned about losing all or some part of your money and if want to avoid the risk associated with an investment account, then you can reduce the risk involved by investing a smaller sum of money for a longer period of time in an investment portfolio which does not buy into high-risk products.
If you have considered all the potential risks involved in investment accounting and are still interested in investment, then you should discuss your options carefully with a financial advisor. Only when you know the exact terms of your account and the risks involved with an investment account can you make an informed and an intelligent decision which will prove best for your long-term finances.
As well as considering the risk involved in investment accounting, it is also very important to decide how you would like to receive your investment returns with investment accounts, should you make any. Usually you can choose between two return options from your investment account: an income or a growth in your capital. If you wish to earn a regular income from your investment account, then your capital will be invested in funds which stand the best chance of earning good returns. These returns from your investment accounts will be paid to you on a regular basis: often once a month or once a year and provide you with an investment ‘income’. This income is not usually guaranteed but depends upon the returns that your capital makes, for e.g. you may be entitled to an income equivalent to 10% of any returns earned. The rest of your returns from your investment accounts will be added to your capital, increasing the amount that is invested and improving the chances of excellent returns.
Alternatively, non-income investments reinvest returns that your capital earns so that the value of your capital grows over a period of time. When the investment period is over, your original capital should increase; there is generally a good chance of non-income investments growing better than income investments because all returns are re-invested and as the capital increases so does the potential for good long-term returns.
There are typical advantages and some drawbacks associated with investment accounts, for example:
Advantages of Investment Accounting:
- Can specify the type of company in which you wish to invest
- Potential for great investment returns
- Long-term investment possible
- Can invest smaller or large sums of money
- Investment managers can monitor the markets to avoid dramatic losses
Disadvantages of Investment Accounting:
- Economic crises or market problems may reduce value of investment
- Long-term investment prevents early withdrawals
- No guarantee of returns
- Reliance on aptitude of investment manager to make profit
- Potential loss of capital
- Hidden costs and work involved