SAVING VS. INVESTING
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Why Should You Save And Invest? What is the difference? SAVING VS. INVESTING Watch it grow Common saving tools Saving... Investing... Reasons for Investing Reasons for Saving Helps meet short-term goals Yields lower return with lower risk Helps meet long-term goals May yield higher return with higher risk Is a long-term commitment to put money away and let it grow. Is a short-term commitment to meet unexpected shortfalls. • Achieve personal and financial goals • Build an emergency fund • Keep funds secure while increasing them • Plan for long-term goals such as retirement • See value increase over time • Take more risk for possibly more return on investment Rule of 72 Deposit $5,000 today at 2% interest rate: 72/2 = 36 Estimates the length of time (in years) for funds to double with compound interest. Savings Account Money Market Account Certificate of Deposit Savings Bond Often used for emergency fund and other short-term savings goals Higher minimum deposit and gets a higher return than savings accounts Deposits locked in for specified time, earns interest, and has penalties for early withdrawal Has low risk and growth, is government issued and backed Common investment tools Stock Bond Mutual Fund Physical Asset Ownership of a company that may grow in value or earn dividends Money lent to a government or corporation; Earns interest and the face value at maturity Reduce risk by allocating funds among a wide variety of investments and savings tools. Funds invested in a diversified portfolio that may earn dividends Items such as art, real estate, and land whose values may rise over time (36 years for $5,000 to double to $10,000) Deposit $5,000 today at 8% interest rate: 72/8 = 9 (9 years for $5,000 to double to $10,000) COMPOUND INTEREST 72/interest rate = number of years to double Diversification In other words: Don’t put all of your eggs in one basket. Learn more about this topic and download a copy of this infographic by visiting atlantafed.org/infographics Follow the @AtlantaFed
Transcript of SAVING VS. INVESTING
Why Should You Save
And Invest?
What is the difference?
SAVING VS. INVESTING
Watch it grow
Common saving tools
Saving... Investing...
Reasons forInvesting
Reasons forSaving
Helps meetshort-term goals
Yields lower return
with lower risk
Helps meet
long-term goals
May yield higher
return with higher risk
Is a long-term commitment to put money away and let
it grow.
Is a short-term commitment tomeet unexpected shortfalls.
• Achieve personal and financial goals• Build an emergency fund• Keep funds secure while increasing them
• Plan for long-term goals such as retirement• See value increase over time• Take more risk for possibly more return on investment
Rule of 72
Deposit $5,000 today at 2% interest rate: 72/2 = 36
Estimates the length of time (in years) for funds to double with compound interest.
Savings Account Money Market Account Certificate of Deposit Savings Bond
Often used foremergency fund
and other short-termsavings goals
Higher minimumdeposit and gets ahigher return thansavings accounts
Deposits locked in forspecified time, earns
interest, and has penaltiesfor early withdrawal
Has low risk andgrowth, is government
issued and backed
Common investment tools
Stock Bond Mutual Fund Physical Asset
Ownership of acompany that may
grow in valueor earn dividends
Money lent to agovernment or corporation;
Earns interest andthe face value at maturity
Reduce risk by allocatingfunds among a wide
variety of investmentsand savings tools.
Funds invested ina diversified portfolio
that may earndividends
Items such as art,real estate, and landwhose values may
rise over time
(36 years for $5,000 to double to $10,000)
Deposit $5,000 today at 8% interest rate: 72/8 = 9(9 years for $5,000 to double to $10,000)
COMPOUND INTEREST
72/interest rate = number of years to double
Diversification
In other words: Don’t put all of your eggs in one basket.
Learn more about this topic and download a copy of this infographic by visiting atlantafed.org/infographics
Follow the @AtlantaFed
