You've probably heard the sayings "save for a rainy day" and "invest in your future." Both are something you and your partner probably don't think about much. You've both got lots of time ahead of you. However, now is precisely when you should take advantage of that time to see your money grow whether you save or invest.
You're pretty much stuck with a traditional bank account, savings bond, certificate of deposit or money market funds for your savings. Not so with investments. Choices include publicly traded stocks, commodities, foreign currencies, precious metals, gemstones, antiques, artwork and collectibles. While some cars, such as a 1965 Mustang, could be considered an investment, that brand new luxury car you have your eye on probably isn't.
Savings in federally insured financial institutions carry very little risk. In the unlikely scenario the bank goes under, your money is safe up to $250,000. Savings bonds are issued by the government and carry little risk as well. Investments in the stock market are inherently risky as the price is based on the market. There are no guarantees. Mutual funds share the risk across a variety of companies and industries, so are less risky. If one company's stock drops, your whole investment won't be affected. Other investments such as real estate holdings, gold, penny stocks or private equity face much higher risks than savings.
You know what you're getting as far as return on investment when you open a savings account. The interest rate, while not guaranteed, is in the low, very low, single digits. Investments, on the other hand, have a much higher potential for returns. Publicly traded stocks can double or even triple within a short time period. Gold can go through the roof or fall through the basement. You and your partner need to diversify your investment portfolio to maximize return and minimize risk. Have your crystal ball handy.
When you make a deposit to your savings account -- or checking account -- you are lending the bank your money. The bank promises to pay it back when you make a withdrawal. If you have a loan, or credit card, with the same bank or credit union where you save, the financial institution can take your savings, if you default on the loan. A savings account isn't quite as liquid as cash in hand but it's very close. Investments vary in liquidity; stocks, bonds and mutual funds may take a day or two to be sold and convert to cash. Other investments such as antiques and artwork could take months to yield the price you want.
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