The differences between saving and investing
Savings accounts, checking accounts, and certificates of deposit (CDs) help you put money away in a safe place for use in the future. They can generally be easily cashed in and are referred to as "liquid."
But there's a trade-off for security and ready availability: your money is general paid only a modest interest rate — or none at all — and so your savings grow slowly.
Investing involves committing money into an investment vehicle in the hopes of making a more substantial financial gain. Investing is different from saving because
- It involves a greater level of risk
- There is no guarantee that you will get your money back. You could lose the amount you've invested, which is called your principal.
But when you invest, you also have the opportunity to earn more money than when you save. This is known as the risk-reward trade-off. Generating potentially higher returns generally involves some degree of risk.
Because of this trade-off, you should gauge your personal risk tolerance when choosing investments for your portfolio. The goal is to find an appropriate balance — one that generates some gains, but still allows you to sleep at night. Our financial professionals have tools to help you identify your risk-tolerance level.
Both saving and investing are crucial to helping you reach your financial goal. Savings accounts are generally straightforward affairs available from banks and credit unions. Here we will focus on the investment side of the equation.
Saving and investing basics
Please consider the charges, risks, expenses and investment objectives carefully before purchasing a mutual fund or exchange-traded fund. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.