How To Save and Invest

There are many different ways to save and invest - here are the most commonly-used types of accounts:

Savings Accounts

If you choose to deposit your money into a savings account, it will be insured by the FDIC (Federal Deposit Insurance Corporation). The bank will pay you interest, and you can access your funds whenever you would like.

Insured Bank Money Market Accounts

These accounts are a type of savings account offered by banks and credit unions very similar to regular savings accounts. However, they usually pay higher interest, have higher minimum balance requirements, and only allow a limited number of withdrawals per month. Check-writing privileges are often granted with this type of account, and most are insured by the FDIC.

Certificates of Deposit

If you put your money in a CD, it will earn interest at a much higher rate than a regular savings account. It is important to note that the money in the CD has to stay put for a specified amount of time unless you are willing to pay a penalty.

Stocks

A stock is a share in a particular company or corporation. If you buy a stock, you become one of the owners of the company.

Bonds

When you buy a bond, you are loaning money to whomever you are buying the bond from. In return, they pay you a fixed amount of interest over a certain period of time. You get your money and the interest it has earned when the bond matures.

Mutual Funds

A mutual fund is a pool of money that is professionally managed by a group who has experience picking investments. People can then choose to invest in the mutual fund and their shares go up in value or fall depending on the values of the stocks and bonds in the fund. Key Topic: Risk and Return

What Are the Risks Involved?Savings Accounts, Insured Money Market Accounts, and CDs

Federally insured accounts including savings, CDs, and money market accounts tend to be safe, and money placed in these accounts are easily accessible. The drawback of these types of accounts, however, is that the money earns at a relatively low interest rate, also called a low rate of return.

Stocks

As far as investments go, stocks provide the highest rate of return. However, stocks also happen to be one of the riskiest investments anyone can make, precisely because there are no guarantees of profit. This is why it is always important to do research and learn as much as you can about a company before you invest in it.

Bonds

Bonds tend to be less risky than stocks because they involve a promise to repay. However, bonds can still be risky, and you can check a bond’s credit rating to gain an idea of the level of risk involved. While bonds provide lower rates of return than stocks, they generally provide higher returns than savings accounts.

Mutual Funds

One can determine potential risk of mutual funds by analyzing the stocks and bonds in the fund. No mutual fund can guarantee its returns, and it is important to note that no mutual fund is risk-free.So, in thinking about all of the above with regard to risk in investments, a good rule of thumb is: the greater the potential return, the greater the risk. You should always do research before making a decision.

What Is “Diversification?”

In order to reduce the risks of investing, it is important to invest in a wide range or variety of investments. This is called diversification. This is logical because it is impossible to predict the success or failure of the economy or the company one invests in, so it is necessary to take measures to protect your money – and diversifying is a good strategy to undertake in order to do so.

Achieving Financial Security

The balances on high-interest credit cards account for a good majority of any given person’s debt. Once one has paid off his credit card debt, it is a smart idea to save, invest, and avoid future credit card debt. Here are some tips and strategies to try:

• Put Away the Plastic
  • Do not use a credit card unless you have the money to pay off the bill when it comes.
• Know What You Owe
  • Have a clear idea of what you owe, and keep a consistent plan to pay it off. Pay close attention to your balance and know how long it will eliminate your debt.
• Pay Off the Card with the Highest Rate
  • If you have balances on more than one credit card, pay down the card with the highest interest rate first.

Achieving Financial Security