The Four Layers of Investing Explained

Sometimes I get the question, "What sort of return does a Roth IRA make?" 

Or, "What's better? What should I invest in? A 401k? Or should I invest in index funds, because they're low cost?" 

And it's normal to get confused with all the different types of financial language and different account types, and things like that. So here's a quick example to hopefully clear it up and make it easy to understand:

• Picture a bullseye, and in the large, outer circle is the brokerage. That's like Vanguard, or Fidelity, or Schwab, or any of the big institutions that you've probably heard of before. 
• And then in the next circle, that's the accounts; your IRA or your 401k could be in there, or also trust investment accounts. 
• And then inside the smaller circle are your account types, you've got actual funds, things like mutual funds, index funds, and they could be, of course, made up of other investments. 
• And then if you're using index funds or other funds, inside those funds, in the smallest, center circle, are the individual holdings of the stocks, or of the bonds, or whatever's making up those index funds. 

So, that's just a quick example, hopefully to clear it up for you if you were confused.