There are a lot of ways to save your hard-earned money and accomplish your financial goals. If you want your money to have the possibility of growing over time, you may want to consider investing your savings. Not familiar with investing? Don’t be intimidated, it’s not as complicated as it sounds. If you want to learn, grab a cup of coffee and keep reading. We’ll help you understand the basics of investing including investment concepts, strategies, and personal factors to consider when making investment decisions.
There are many vehicles to invest your money in and many strategies for how to choose which ones are right for you. The approach you take will depend on your personal situation, including factors such as your goals, risk tolerance (comfort with changes in the market) and time-horizon (length of time you plan to invest).
Purchasing stocks or bonds are two common ways to invest. You can also purchase mutual funds, which pool your money with that of other investors and invest it in a diversified portfolio of stocks, bonds, or another vehicle, or some combination thereof. Stocks are generally considered more risky investments than bonds and because mutual funds are a combination of investments they offer more diversification.
Much like bonds earn interest, you will find that some savings accounts offer the benefit of earning a small amount of interest on your money. Although it’s technically not invested, depositing money into a savings account is like lending money to a financial institution. A financial institution may pay you interest on the money you have deposited there, so that you can earn a small percentage on your savings over time. The amount of interest paid and how often it gets paid is primarily based on the type of account. Depending on the type of account and terms, interest may also compound over time. Compounding interest lets you earn interest not only on your original deposit, but also on any interest you earn on that deposit. It means your original deposit grows much, much faster than it would with simple interest!
It’s important to remember that you are taking on risk with any investment, because you’re never guaranteed a positive return. While there’s always the potential to lose money (fingers crossed this isn’t the case), risk varies with investment type and if you are careful in spreading out your risk, you can minimize your chances of loss. A strategy many investors use to spread out their risk is called diversification. Diversification is an investment strategy where you choose many different investment types to balance out your exposure to risk – pairing investments that are risky with those that are not-as-risky, so you are more protected overall. Diversifying your portfolio is essentially making sure you don’t “put all your eggs in one basket.” Cliché, but true!
So, just how should you go about investing and putting an appropriate strategy in place? There are so many investment options and things to consider regarding your personal situation that a good place to start is with consulting professional. You can talk to a financial planner to understand the risk you are comfortable taking and get advice on how to invest to meet your specific goals, both short and long term. Don’t think you have enough money to work with a professional? Many financial planners offer simple, flat fees so there’s no minimum investment required to work with them. That’s true here at John Hancock! Our team of financial planners offer flexible packages to fit your needs and your budget. Everyone starts somewhere.
Please note: Financial advice should be tailored to individual circumstances and the content of this article should not be viewed as recommendations. This article is not an endorsement of any particular product, service or organization; nor is it intended to provide financial, tax or legal advice. It is intended to promote awareness and is for educational purposes only. The specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.
Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-5432.
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