Saving and Investing

The difference between saving and investing is that when you invest, you put money in hoping to get something better back out. Every contribution is a step towards the goal of having the kind of retirement you want. Here are some of the most common choices:

Stocks—these are shares of ownership that a company sells to individuals to raise the money it needs to conduct business. The value of the shares usually rises and falls over time, depending on how the company is doing. However, there is potential for high long-term growth. Stocks have the highest risk and return potential.

Bonds—these represent loans to a company or government to finance operations. The loan is paid back after a fixed number of years and the investor receives regular interest payments. Typically, the risk is lower than that of stocks, but may not earn as much in the long run. Bonds have moderate risk and return potential.

Mutual Funds—these are professionally managed funds where your money is combined with money from other investors to invest in a variety of stocks and bonds. This is a good way for smaller investors to gain diversity of their investments. The risk level depends on the stock and bonds in which the mutual fund invests.

Cash Investments—these are the most basic type of investments but produce the lowest returns. Types include bank and savings accounts, money market mutual funds, certificates of deposit, and treasury bills.

As always, investments don’t come without risk, but if you’re investing for the long term and start early, you’ll have more time to ride the ups and downs in the market. Whatever you do, choose the investments that are right for you.

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Published On: September 8th, 2010 / Categories: Investing / Tags: , , , , , , , , /