Saving and Investment Fundamentals

Building wealth requires understanding the difference between saving and investing.

Saving vs. Investing

Saving

• Purpose: Short-term goals and emergencies

• Risk: Very low (FDIC insured up to $250,000)

• Return: Low (1-3% annually)

• Timeline: Less than 5 years

Investing

• Purpose: Long-term wealth building

• Risk: Higher (can lose money)

• Return: Higher potential (7-10% annually historically)

• Timeline: 5+ years

Why Invest?

• Beat inflation: Money grows faster than prices rise

• Compound growth: Earnings generate more earnings

• Long-term wealth: Build retirement funds

• Financial goals: House, education, financial independence

Investment Basics

Risk vs. Return: Higher potential returns come with higher risk
Diversification: Don't put all eggs in one basket
Time horizon: Longer timeline allows for more risk
Dollar-cost averaging: Invest same amount regularly

Common Investment Types

1. Stocks: Own shares in companies

2. Bonds: Loan money to companies/governments

3. Mutual funds: Professional management, diversification

4. Index funds: Track market indexes, low fees

5. Real estate: Property investment

The Power of Compound Interest

Example: $1,000 invested at 7% annual return

• After 10 years: $1,967

• After 20 years: $3,870

• After 30 years: $7,612

Starting early makes a huge difference!

Remember: The best time to start investing was 20 years ago. The second best time is today.