There are a few different types of investments out there. But two very common ones are stocks and CD’s. Each one offers its own solution to saving and investing money, but they are completely difference.
First of all, let’s look at what these investments actually are, starting with CDs. A CD is simply an investment that banks offer. Anyone can invest their money into a CD and earn a secured return on their money. This return is normally small, 1-4% annually, however it is safe and that is the trade off.
This is a really safe way to invest and it does normally help you at least keep up with inflation. However, there is a problem with this.
Not many people seem to question why banks would be willing to do this. Isn’t there a reason behind it? Well yes there is and that reason is that they also invest money.
What banks will do is take the money that is invested into them and invest into strong dividend paying stocks and give out bank loans and do all sorts of things that make them more money.
Although these investments do have some risk in them, you cannot invest into the stock market and get a 100% guarenteed return off of your investment. However they have so much potential that paying out a 1-4% interest for the opportunity to invest into them is almost nothing.
Some investors have gotten smart and decided to stop investing into bank savings plans and other similar plans and start investing into stocks and other investments themselves making larger returns.
Stocks represent ownership of a company. Over the long term they have been a very powerful way of investing your money offer a much higher return then other many other assets out there.
Does this mean that you should not invest into things that are safe and offer a low return? Well it kind of depends on your goals and the amount of effort you want to put into investing. If you want to grow your money and are willing to put in the time and energy to get good at it then investing into something like stocks can be a better alternative.
Now, on the other hand if you do not want to take the time to learn to invest or if you just want to have a safety net that you know will be there, then investing into something safe with a smaller return will help you get there easier.