How Do Investment Firms Work?

Investment firms offer stocks, mutual funds, real estate and other assets for sale.
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Investment firms make it possible for people to buy and sell securities, companies and other assets. They're strictly regulated, so you know you are protected from fraud, misrepresentation and other improper conduct. Individuals working as brokers may not be subject to the same types of rules, leaving you exposed to risk. Some investment firms also offer retirement savings or financial guidance to assist you with long-term planning. Before choosing an investment firm, you can research candidates on the Securities and Exchange Commission's Central Registration Depository.


Investment strategies and funding structures vary by firm. Investment banks are usually publicly traded entities that allow shareholders to purchase an interest in their portfolio of assets. Venture capital investment firms look for private companies that need funding. These are typically startups that are willing to offer equity in the company in exchange for money from the venture capital firm. Hedge funds invest in a variety of assets to diversify their risk. These funds are exclusive and are not usually open to the general public. A mutual fund invests a pool of money from multiple depositors and sells shares of the overall fund. The fund"s investments may be tied to a market index or focus on the fund manager's preferred sector.


An investment firm may have only a few employees or as many as thousands, depending on the amount of assets in its portfolio and the number of investors it must service. The investment portfolio is typically managed by only one to three top executives. The firm may be publicly traded or privately owned. Privately owned firms can choose to limit participation in their investments to a select group.


Consider your level of risk tolerance when choosing an investment firm. Your risks depend on the investment strategy of the firm you choose. A firm's management may decide to focus only on one class of asset or market segment, leaving you open to massive risk if the target market fails to perform. For example, venture capital firms may prefer to invest only in technology companies.

Legal Concerns

The SEC oversees investment firms in the U.S. to protect investors from fraud. The firm must register and disclose the names of any key individuals involved with its management, its financial structure and planned investment strategies. In 2002, the Sarbanes-Oxley Act added more reporting and accountability provisions. The Securities Act of 1933, also known as the Truth in Securities law, requires firms to disclose all relevant information related to the securities they market for sale. This allows investors to make informed decisions with their money.

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