There are many reasons to use an individual trading account like one with City Index, rather than relying on the lousy yields in savings accounts and other income instruments or employer-sponsored plans alone. Let’s take a look at a few:
You Want More: For one, if you’ve already maxed out employer contributions and want to invest more, individual trading accounts are a natural progression. Depending on which country you live in and what kind of employer contribution plans you’re offered (if any), your situation can be vastly different. But for people who save more than they spend, a natural ambition is to invest excess funds in some sort of trading account rather than let them languish at near zero percent interest rates. Even if you don’t beat the market, you’re way better off than spending it and arguably, you’re avoiding losing money to inflation if you’re even keeping up with broader market returns.
Average Isn’t Good Enough: Next, many people don’t want to settle for “average” and match market returns with index funds. We’re a pretty competitive species and just settling for index fund returns isn’t where many of us want to be. Granted, many studies show that a lot of individual investors would actually be best off if they left their money in index funds over investing themselves, but then again, index funds don’t reward you with the next 1000% return growth stock or provide the investing options available in a typical employer sponsored plan or index fund. See what I mean below.
Hedging: Many people and even small businesses rely on individual accounts for hedging. Hedging doesn’t have to be some obscure financial expert’s move; common people hedge and speculate all the time. Here are some examples: I hedge our family’s gas prices using a gasoline ETF so when gas prices increase, I make money on my investment and when gas prices drop, while I may lose money on the trading account holding, our family pays less in fuel costs. Either way, it helps remove some risk and uncertainty to our personal finances. The same can be said of many small and medium sized business with international sales. They can use a trading account to hedge currencies to help offset large swings in profits due to currency exchange rates.
Do You Trade in an Individual Trading Account?