MONEY 2020 TM

Saving versus Investing

What is the difference between savings and investing? With savings, the initial deposit remains constant and earns interest or dividends. Some examples of savings instruments are passbook savings accounts, savings bonds, certificates of deposit (CD's) and bank money market accounts.

With investments, the initial deposit (or capital) can increase or decrease in value and investments may or may not pay interest or dividends. Examples of investment vehicles include real estate, stocks, bonds, and collectibles such as antiques, stamps and coins.

Before You Invest

	You should have a solid financial base. It should include: an emergency fund of 2 to 6 months take-home pay risk protection in the form of life, health, and property insurance plans for retirement income (such as pensions, IRAs and salary deferral plans such as 401(k)s or 403(b)s) possibly home ownership with some equity - if this meets family/personal goals.
	You should become more knowledgable. About the financial marketplace Bonds Fixed Income Futures Investing International Investing Investing Basics Mutual Funds Risk & Rewards Stocks Treasuries Variable Annuities About yourself as an investor (If you don't have a Java-enabled browser, you can still take the self-scored quiz). About core investing principles. About keeping track of your investments using the financial pages in the newspaper.
	Set investment goals.
	Seek advice. The library has many periodicals such as Money, Kiplingers Personal Finance, Business Week, Fortune, Barrons and the Wall Street Journal. There are television shows and other web sites as additional sources of information. Stock brokers, insurance agents and financial planners can provide valuable information on investments. If you decide to seek the services of a professional financial planner, be sure you understand what the specific services and costs will be.
	Be realistic. Very few investors ever 'get rich quick' on Wall Street. Because of the recent history of dramatic annual returns for stocks and mutual funds, many investors in today's market have unrealistic hopes about the kinds of returns they expect to receive from their investments. The following chart shows a historical perspective of average returns for different kinds of investments.
	Keep good financial records. This will help you at tax time and will also make it possible for you to analyze how well your investments are doing over time.

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