Basic Investing

What Is Investing?

Investing is putting your money where its value will grow over time. There are many types of investment tools. Each has benefits and risks. Generally, the higher the risk, the greater the potential for higher earnings. However, there is also a greater potential for loss. Conversely, the lower the risk, the lower the potential for high returns. It is important to research these risks and benefits before making the financial decision where to invest.

Savings Account

  • An account in which you can deposit money regularly, at any time.
  • A statement from the bank will show your balance.
  • Your money earns interest, depending on the rates of the bank.
  • You may withdraw money at any time.
  • You may need to keep a minimum balance.
  • This type of investment has low risk, but low earning potential as well

    • Savings Club

  • An account in which you deposit a fixed amount of money at a designated time.
  • This account may help save for a specific purpose or big expense.
  • The amount of money deposited is normally a little at a time.
  • Your money may not earn interest in this type of account.

    • Certificates of Deposit (CDs)

  • You must initially deposit $500 or more.
  • There is a certain period of time in which you may not withdraw money from the account.
  • The interest rate stays the same, regardless of rate change.
  • The interest rate is normally higher than in savings accounts, but the investment still has low risk.
  • CDs help save for future expenses such as college or a down payment for a home.
  • There are penalties if you withdraw the money early.

    • Mutual Funds

  • When you invest in a mutual fund, you hold shares in a group of securities, which may include stocks, bonds, government funds, or money market funds.
  • Investors buy shares in the funds and receive a part of any profit.
  • Profit depends on the value of the share profits and quarterly dividends.

  • Some funds have a low initial investment.
  • Mutual funds can be easily tracked.
  • Your investments can be made automatically.
  • These investments have varying risks and earning potentials.

    • Bonds

  • Investing in a bond is loaning your money to a corporation or the government.
  • You receive the interest and face value of the bond once it matures, over a set period of time.
  • Bonds may take 5 to 20 years to mature.
  • If you are invested in a company and it fails, you could lose your investment.
  • Bonds range in risk.

    • Stocks

  • Investing in stock is buying shares of ownership in a corporation.
  • Stocks can be very inexpensive.
  • You must go through a broker to buy and sell stock.
  • You can research the company you will be investing in to forecast how it will do. Some common places to research are the Internet, investment magazines, or through a stockbroker.
  • You may vote on certain company issues as a stockholder.
  • Stocks rise in value when the company does well.
  • Stocks range in risk and earning potential.

    • Real Estate

  • Investing in real estate is the purchase of property.
  • You may profit by selling the property for a higher value or renting it out.
  • You may lose money if the value of the property depreciates.
  • There is a high tax exemption for owning property if it is your primary residence.
  • The risk varies depending on the condition of the Real Estate market at the time you purchase and sell. However, it is generally a good long-term investment.
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