by Ben Young
No matter what stage of life you're in or path you decided to take, everyone needs money. Whether to pay the bills, pay off debt, save up for a stress-free retirement, or simply to have a little money to treat yourself with, we all find ways to pay for these things. What often comes to mind first is your job(s). Exchanging your time, experience, etc for money. But what if you have a little extra saved up and want to make that money work for you? Well, that’s what investing is all about!
Before we dive any further, let's talk about investing vs saving. It isn’t uncommon for these terms to be thrown around interchangeably, but knowing the differences between them can help you better understand what you’re doing with your money.
Saving- This can be thought of as purposefully setting aside money that you've decided not to spend. This can be considered one of the most risk-free options considering the fact you’re not risking anything. It’s purely setting aside money and letting it sit there. As is with the nature of savings, since there is no risk being placed, there is no “reward” to be reaped. Oftentimes you may see banks( whether physical or digital), offer interest as a way to attract and retain customers. The interest rates that they provide are exponentially smaller than return rates you might find with investment options. With banks that have physical buildings, you can normally see percentages from .01% to .1% with the national average being .05% annual return/ interest rate. Then there are other banks that exclusively operate digitally without having to maintain physical locations- passing on the savings to you. With these digitally operated banks, you can see interest rates anywhere from .4% to as high as .65% with the average hovering around .5%.
Investing on the other hand is where you are purposefully allocating money to be spent in hopes of growing that money (oftentimes long term). In an extreme exaggeration, think of this as money you are- to an extent- willing to lose. 99% of the time this isn't the case but since you are spending money compared to purely saving it, you run the risk of losing all grains or potentially losing money depending on the investing options. The main point to understand with investing is that you are able to make your money work for you. Being able to develop additional sources of income to supplement or in rare instances, entirely replace your main source of income. Passive income is a way to effectively make money even when you're not working. It’s like having another you that works while you sleep or are on vacation. By doing so, you can expand the potential that you have to grow financially while retaining a work/ life balance since you don’t need to sacrifice more hours working when you could be doing other things.
While investing is a very broad term, I’ll be breaking it down into some of the common and well-used investing paths people go down.
Before I explain the various options, always remember to diversify your portfolio. Don’t exclusively invest in real estate or exclusively stocks. By not placing all your eggs in one basket, you are better able to financially stabilize yourself if the economy or housing market were to encounter times of extreme volatility or uncertainty.
The first option is buying physical resources like gold, silver, etc. These options are extremely stable and off around 3% in returns. I would group these with government bonds as they offer very good stability while providing very low returns as a result of the stability. Within government bonds, You can expect a ~1.25% annual percentage rate (APR) for a 30-year bond.
The next option is investing in mutual funds & index funds. They are in essence a small cheese board of stocks all bundled together. A well-known Mutual fund is FANG or Facebook, Netflix, Goggle (alphabet). These mutual funds allow you to have a diverse stock portfolio. In comparison, Index funds are funds that track the growth of the entire stock market as a whole, regardless of sector. Usually, you can expect an average of 7%-12% annually. The only downside to this option is if there is an unexpected downturn in the economy and it changes from a bull market to a bear market.
The last option I will be talking about is individual stocks. This is where if you don’t do your homework you will be paying the price (quite literally). Stocks are one of a few options where you could lose a significant amount of money or make a significant amount. The percentages can range from anything you can think of. A prime example would be Gamestop (GME), People who did their homework early on and invested at $15 stood to make well over $400 per share at its peak. While others invested at $400+ and lost most of that money. You could easily lose your entire investment on a single mistake. This option requires a large amount of your time dedicated to understanding all the terms and concepts so can be intimidating for people starting out. But after you understand the basics terms and concepts, you can start investing using any well-capitalized brokerage like E-trade, Vanguard, TD- Ameritrade, etc.
Although I only list a few options for investing, there are a plethora of other avenues like investing in real estate, cryptocurrencies like bitcoin, ethereum, etc, among many others. But regardless of the ones you pick, always do your research and find the best one that fits your wants and needs.
Works Cited
Goldberg, Matthew. “How Often Do Treasury Bonds Pay Interest?” Bankrate, www.bankrate.com/investing/how-often-do-treasury-bonds-pay-interest/.
Lauren Perez, CEPF® “What Is the Average Interest Rate for Savings Accounts?” SmartAsset, SmartAsset, 27 Jan. 2021, smartasset.com/checking-account/average-savings-account-interest.
Norrestad, Published by F., and Nov 16. “Gold vs Other Assets: Average Annual Returns 1971-2019.” Statista, 16 Nov. 2020, www.statista.com/statistics/1061434/gold-other-assets-average-annual-returns-global/
O'Shea, Arielle. “How to Invest in Stocks: A 6-Step Guide for Beginners.” NerdWallet, 11 Feb. 2021, www.nerdwallet.com/article/investing/how-to-invest-in-stocks.
Yochim, Dayana. “Index Funds vs. Mutual Funds: The Differences That Matter.” NerdWallet, 11 Feb. 2021, www.nerdwallet.com/article/investing/index-funds-vs-mutual-funds.
This comment has been removed by the author.
ReplyDeleteBen, I really appreciated your post about investing. Investing is one of those things that I always hear other people talking about, but I never knew enough to participate in the conversations. Family members and friends have told me that investing is a great way to make money (like you said), but I've always been very intimidated by the stock market. Thank you for breaking things down so that they're easier to understand! You broke this information into smaller pieces that were easier for me to "digest," and now I can do further research for myself. I do have a few questions,however. What's the difference between a mutual fund and index fund? Are they the same things? Should you invest in both index/mutual funds AND individual stocks, or just stick to one or the other? Thanks for sharing your thoughts!
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteI found it helpful that you broke down the different types of investments and how they vary. Let's assume someone wants to make as much money as possible from investing and they are willing to take risks. I would assume that buying individual stocks would help you achieve that goal since they offer the biggest returns. You mentioned that to pick the right stock, you have to do your homework. What sort of factors go into picking an individual stock? From my understanding, stock grows as the company grows. So, you would just want to pick companies that look like they have a lot of growth. However, I’m sure other external factors also play into stock price. So, what sort of other factors come into play?
ReplyDeleteAs we all get older saving and investing is becoming more and more important. I know quite a bit about the differences between index funds, mutual funds, and other investment options but something that I'm not necessarily well versed in all of the ins and outs of simply saving. It was nice to start to learn about the different banking options that can come with saving and the different options that come along with it. Is there one type of banking that you use or prefer? If so why? I'm trying to get a better grasp of how I should really be putting my money away and you seem knowledgeable on the topic!
ReplyDeleteI very much appreciate the visuals and construction of the paragraphs, as they made the post more visually appealing. I do not know anything about investing and was never taught in school so learning about investing real estate, cryptocurrencies like bitcoin, ethereum, etc, was interesting to me. I have heard lots about the stock market but have never had a clear explanation that has made sense to me. The wording really helped me understand and read the post easier.
ReplyDeletei liked the ways of investing that you said.
ReplyDeleteThis post was very well done there where so many different ways for someone to make money and invest.Becuase so many people invest and I dont have that much knowledge about this and its so fasinating. you included what is means to invest in stocks and how is can mess up or go really well depending on how you invest even though my dad talks to me about this I didnt know you could lose a ton of money i always thought of it as safer way to invest money.And this is very useful to me becuase I was planing on making investments in stocks and now I going to take a much more careful aproach. even with all this there is still much more I need to know before I invest but your post made it a bit easier to understand what it means to invest. But some questions I have for you is what are some of the risks of purchasing gold and silver? This would be nice to know becuase it would be very interesting to know more about that.
ReplyDeleteI thought the different types of investing were very interesting as worth paying attention too for the future. I originally thought investing was just buying stocks and holding on to them for a long period of time which is partly true, but with this post it shows me that there are other ways to invest such as buying physical goods and holding onto them for a higher return as they are usually stable. The different types of investment will definitely be a factor and something I look into further for investing in the future.
ReplyDeleteI agree with you on that Investing is very important especially when we are aging and entering into the workforce, I also enjoyed that you went in-depth with the differences between mutual funds and index funds, and you also gave information about other types of investing. I also found it good that you talked about different banking options and which ones to look for. What kind of banking do you use/plan on using?
ReplyDeleteIt was interesting to learn about the different types of stocks, as well as to learn about interest rates percentages. I didn't know much about either investing or stocks, so it was nice to be given a standard idea on the potential outcomes of both. Using Gamestop as an example of individual stocks example was pretty neat because most of us understand what happened with Gamestop at this point, and it was a nice visualizer for what you were talking about. However, for mutual funds, the terms 'bull market' and 'bear market' were briefly mentioned, and I'm afraid I don't know the differences between those. I wish you would've made sure to go over those potentially new terms for your readers. Despite that, I found you post very educational, and learned a lot, such as how it's a bad idea to put all of my investments in to one thing, as I believe I most definitely would've made that mistake on my own.
ReplyDeleteI really like how you broke down a few types of investing, and gave visuals to help get you point across.
ReplyDeleteI really liked the set up of this blog and how you organized you topics and along with that I found the visuals very helpful. Investing is something that can be super fun and exciting when you first get into it but one thing that I have found through research is that you have to understand how to invest into things such as stocks because with minimal understanding it can end up costing them a lot of money. The issue comes when situations like the game stop stock hit the news and it becomes a highly talked about topic, people feel that they need to get into the stock market but than they go in blind without a good understanding causing them to lose money. Even with a minimal understanding, stocks can still be a safe long term investment and day trading is where they get a little more high risk high reward. Other investments like bitcoin are starting to gain even more and more publicity with the recent spike so do we think that bitcoin will be the investment or the future, or will stock and things such as gold and silver still be the most popular way to invest?
ReplyDeleteYou laid out all of the different options for saving and investing really well. Using direct comparison with the different branches really helped to get your point across. That, combined with the visuals, made what you were saying very clear. Using Gamestop as an example was a good choice, as many people probably have at least heard about it recently, making it topical. There were a few grammar issues I would have fixed, but otherwise you still got your point across. Overall, good post!
ReplyDeleteI really like how you made sure that we understood the difference between saving and investing money before going into your piece, instead of just assuming everyone knew the difference, as many people often mix those two up. I also liked how you went over all the investment options, not only describing what they were (and helping me understand the difference between mutual funds and index funds, but talking about the positives and negatives of each of the investment options. But this makes me wonder what is the best investment option to me? I personally feel like investing in individual stocks is the best option, but it’s a dangerous game, and I surely wouldn’t put too much money in this option due to the high risk. But as long as you have an extensive knowledge and understand how the stock market works, it can be extremely rewarding as well.
ReplyDeleteBen, I really enjoyed reading your blog because it contained a lot of information to help me better understand the difference between saving and investing. This really opened my eyes because normally i'm a saver, and after learning that most people end up getting a return after investing really peaked my interest. I also was very surprised by the variety of stocks there are to invest in, and the best ones to invest in for the long run. I have always been scared of the word "investing" because I thought of it as losing money, but you taught me that its way more common for people to invest than you think. Thanks!
ReplyDeleteBen, I really enjoyed how explained all the options I have when it comes to investing. I found it very interesting when you talked about saving. You are actually losing buying power when you save. I think you should have talked about the why of investing more. Because of inflation the value of a dollar decreases more and more. And to combat that, you invest so that your buying power increases even with inflation. By saving you are actually losing money. In my opinion, adding some of those points would have made the blog more engaging.
ReplyDeleteI really like how you provided us the information. You gave the readers graphs, charts and pictures as well as paragraphs. Investing can be hard to get into and you provided us with multiple in depth options for investing. I like how you didn't just give the positives to each option but you also gave the negatives as well.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteI'd like to add on another thing to consider when determining what to invest in -- liquidity. Liquidity describes how quickly and easily it is to get money from your investments. For example, if you invested in a collectible item, you need to first find someone to purchase it. Also, with government bonds, there are time commitments, and you may not get any of your earnings if you take the money back early. Sometimes there are emergencies where you will need money fast, so it's important to consider how much of a hassle it will be to get money out of your investments.
ReplyDelete-Sara Lachajewski
Ashley Anderson - Overall, your post was not only insightful, but extremely helpful as well. As I began reading your writing, I was initially intrigued about learning the basic differences between saving vs. investing. Then, as I kept reading on, you broke down the idea of investing further and further so that the audience was able to fully understand what investing entails. This was extremely helpful because since I haven't had the chance to invest money in my life yet, it is good to prepare myself for investing so that I am able to do it both wisely and effectively in the future. According to the Pew Research Center as well, they pointed out that, "more than half of U.S households have some investment in the stock market." This is critical information to note because it confirms your thinking behind why investing is so important (because thousands of Americans invest each day!). Furthermore, the way you broke down your information behind saving vs. investing was a very strong part of your blog. As a result of this, I was able to grasp both tips and tricks as to how I can save and invest for the future.
ReplyDeleteWilliam Castillo: You did a really good job maintaining an informative stance in this piece, as when many people compare saving and investing, personal biases and opinions can get in the way. You explained benefits and drawbacks to both sides and allowed for readers to form their own opinion. Not only that, but you explained different types of investing too, which was very useful. I may not have too much experience investing and saving large sums of money but another thing I think is important is the amount of interest in comparison to inflation rates. Great job on this piece.
ReplyDeleteBen, I really liked the set up of this blog and how your topics and visuals had a good flow making it easy to follow. Investing is something that I really want to get involved with more. It is one of the smartest decisions people can make to help set themselves up for their future. I see time and time again people getting rich off of their smart investments and in your blog you stated that in order to be successful in investing you have to pick the right stocks, and do your homework. So, I was wondering what factors affect what stocks are better or worse and help me to pick an individual stock? What do I do for my homework to pick the right stocks?
ReplyDeleteI have always been intrigued in investing and have wanted to start investing, but I haven’t had the knowledge to know exactly what I’m getting myself into. Your blog post gave me a good idea of what investing is like and different ways that I could invest as well as showed me the different risks that certain types of investments have. I never knew that you could invest in physical resources which I thought was cool, but probably something I wouldn’t invest in. Something I’m wondering is how do you choose which companies to invest in? You mentioned that you would have to do research about the companies that you may want to invest in, but what exactly am I looking for?
ReplyDeleteI really like how you get to the point, actually giving us very useful information. The dynamic of stability vs risk is shown well here. I didn't know about the interest difference in online vs brick & mortar, banks, though. How is it when brick & mortar add an online banking system? How How are those interest rates?
ReplyDeleteI really liked the layout of your bog, Ben! It was super clean and easy to follow. The way you layed out each option and the pros and cons for choosing it was super beneficial to your audience. It can be hard to remain unbiased when writing an informative blog, so I thought you did an exceptional job remaining impartial and purely informative. One thing I wish you would have expanded on is how to correctly choose individual stocks. How could the people who invested in Game Stop know that they would gain or lose money? How can you know when to sell you stocks? Overall, great work! Incredible article!!
ReplyDeleteIt'll be interesting to follow the stock market considering the new influence of online communities. The explanations are concise and clear enough for everyone to follow. Confusing terms are explained thoroughly, which allows you to progress through the rest of your breakdown well. It was also very helpful to mention which methods of saving / investing is more risky or safe so those who do invest know what they're getting into. Great work!
ReplyDeleteSince March, I have been very interested in investing and the importance of learning it while you're young. It can definitely generate a lot of wealth, and knowing what you're doing can save you thousands of dollars. Personally, I like Exchange Traded Funds the most, because they help you to diversify your portfolio, but you get the sense of trading. It makes the experience more fun because I feel like I'm actively trading, but if you are really involved, it can be distracting and stressful.
ReplyDeleteI really liked how you identified the pros and cons of the various forms of investing and saving, without directly telling us which form of investing or saving we should use. I also liked your layout in the post, and I felt that your use of images helped keep your audience interested, because you actually utilized them in your post.
ReplyDeleteI was actually thinking about buying silver, I did know that it was a stable investment, so reading it here confirmed my thinking. Great job on explaining different types of investments.
ReplyDeleteThis gives a broad perspective and is very informative to people who don't know very much about investments. I didn't know half of what was on this, but now that I do, I will be more careful in what I put my money into and what to invest in.
ReplyDeleteI wonder if there is an optimized way of assess the risks involved with each method. Or if there is an average money made from each option that weighs the experience of people who invest or save with different methods. If such a thing existed it would be interesting to see how good an option just saving your money in a bank actually is considering thats what most people do.
ReplyDelete