When most people think investing, they think the stock market. If you find yourself with more money in your savings account than you need for your Emergency Fund, investing in stocks might be an opportunity to get a better return on investment than your savings account interest rate.
A stock is a piece of a company that you own – most investors start by buying a share of a company they know and believe will continue to grow over time.
If you look at all the different investment types open to a typical person, historically stocks have provided the greatest return. Investing in 1 share of Amazon, for example, back in 2010 would have cost about $125.00. By the end of 2020, Amazon’s stock was worth over $3,000 per share – a 37% annual return!
More than doubling your investment every 3 years sure sounds a lot more attractive than a savings account that might not even beat the annual inflation rate.
Investing in stocks might have the highest historical returns, but it also has the most volatile. This means your investment can go up or down depending on everyday market whims, which may not be something you want for your hard-earned savings.
When you decide how to invest your hard-earned cash, there is a trade-off between risk and reward. Riskier investments, like stocks, can also have the biggest reward, but also the biggest chance of LOSING money. Less-risky investments, like bonds, provider a lower overall return, but are generally considered safer.
Budget Game Tip: In the budget game, you can only save money in your savings account, not directly invest it. However, there are investing simulations available to let you practice trading stocks on your own without risking real money!
Now that you know a bit more about investing in stocks, close this window to continue the game!