Saving & Investing (3 Part Series) – Part 2 – Making Money Grow

Part 2 – Making Money Grow

The two ways to make money.

• You work for money.
• Your money works for you.

Your money can work for you in two ways.

• Your money earns money.
• You buy something with your money that could increase in value.

The differences between saving and investing.

• Saving – Your savings are usually put into the safest places, or products, that allow your access to your money at any time. Some deposits in these products may be insured by the FDIC or the NCUA.
• Investing – When you invest, you have a greater chance of losing your money than when you “save”. The money you invest in securities, mutual funds, and other similar investments typically is not federally insured. You could lose the amount your have investment. But you also have opportunity to earn more money.

What about risk?

• All investments involve taking on risk. It’s important that you go into any investment in stocks, bonds, or mutual funds with full understanding that you could lose some or all your money in any one investment.
• It is often said that the greater the risk, the greater the potential reward in investing, but taking on unnecessary risk is often avoidable.
• Investors best protect themselves against risk by spreading their money among various investments – “diversification.” “Don’t put all your eggs in one basket.”

What are the best investments for me?

• The answer depends on when you will need the money, your goals, and if you will be able to sleep at night if you purchase a risky investment where you could lose your principal.

What are investments all about?

• When you make an investment, you are giving your money to a company or enterprise, hoping that it will be successful and pay you back with even more money.

The main differences between stocks and bonds.

• Stocks – If the company profits or is perceived as having strong potential, its stock may go up in value and pay dividends. You make more money than from bonds.
  • Risk – The company my do poorly, and you’ll lose a portion or all your investment.
• Bonds – The company promises to return money plus interest.
  • Risk – If the company goes bankrupt, your money will be lost. But if there is any money left, you will be paid before stockholders.

Mutual Funds – What are they?

• A mutual fund is a pool of money run by a professional or group of professionals called the “investment adviser.” In a managed fund, after investigating the prospects of many companies, the fund’s investment adviser will pick the stocks or bonds of companies and put them into a fund.
• Investors can buy shares of the fund, and their shares rise or fall in value as the values of the stocks and bonds in the fund rise and fall.

Do I need an investment professional?

• Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice. But if you’re busy, you may need professional investment advice.
• Investment professionals offer a variety of services at a variety of prices. It pays to comparison shop.

Before you invest always check with the SEC and your state’s securities regulator.

• Is the investment registered?
• Have investors complained about the investment in the past?
• Have the people who own or manage the investment been in trouble in the past?
• Is the person selling me this investment licensed in my state?
• Has that person been in trouble with the SEC, my state, or other investors in the past?

The best way to choose an investment professional.

• Ask your friends and colleagues who they recommend.
• Get several recommendations and meet with potential advisers face-to-face.
• Make sure you get along.

Make sure you understand each other. After all, it’s YOUR money.