Deciding where to invest your hard-earned money takes research. This savings investment cheat sheet provides some basic definitions to get you started. Keep in mind that you may want to consult a financial planner to find the best option for your situation.
High-Risk Investment Options for Long-Term Investments
High-risk investment options, such as stocks and mutual funds, are best for long-term goals like retirement. When you buy a stock, you are buying a share of ownership in a company. When you invest in a mutual fund, you are pooling your money with other investors to purchase stocks, bonds or securities. Generally, the return on these long-term investments can help you beat inflation, which erodes the value of your money at an average of 3 percent each year.
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Shorter Savings Goals Merit Lower-Risk Investment Options
If you want to achieve a goal in three to five years, you’ll want to look at lower-risk investment options such as bonds, money market accounts and certificates of deposit (CDs.) While our savings investment cheat sheet goes over the specifics of each one of these investments, they all require parking your money for a designated period of time so you can yield a higher interest rate than your basic savings account. If you pull the money out early, you’ll miss out on some of the rewards.
Money You Need Now
Sometimes you need immediate access to your cash. Basic savings accounts fill this need, though they do so at a lower interest rate. The money you save here isn’t likely to beat inflation. These accounts do serve a purpose, though. For example, your emergency fund should be easily accessible, making a basic savings account a great place to keep it.
[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]