Stocks vs CDs
Stocks and CDs are both very common investments and can be used to help you grow your money and build your wealth. But they are two extremely different approaches and only one will help you build real wealth.
First of all, what is a CD? CDs are simply investments that banks offer. With a CD you can invest your money into a bank where they will pay you an agreed upon annual return, usually between 1-4%. Once you have invested your money it will stay invested for a set amount of time if you want to get the full return.
It is a very safe way to invest and helps you to keep up with inflation. But that does not mean that it is all good, there is one problem with this strategy.
Nobody cares to ask how banks can afford to give you a guaranteed return that seems generous. Well the reason is because they too invest.
What banks will do is take the money that is invested into them and invest into strong dividend paying stocks and give out bank loans and do all sorts of things that make them more money.
Although these investments do have some risk in them, you cannot invest into the stock market and get a 100% guarenteed return off of your investment. However they have so much potential that paying out a 1-4% interest for the opportunity to invest into them is almost nothing.
Some investors have decided not to invest into things such as CDs and instead fo strait to the meat that comes from things such as the stock market which has the potential to give them a much higher return.
A stock is simply part of a company. When you buy a stock you are just investing into the company that you bought the stock in. So if you do your research and invest into powerful stocks then it can lead to a large return.
Does this mean that you should not invest into things that are safe and offer a low return? Well it kind of depends on your goals and the amount of effort you want to put into investing. If you want to grow your money and are willing to put in the time and energy to get good at it then investing into something like stocks can be a better alternative.
If you are keeping that money as more of a safety net and just want it to be safe, then CDs can work pretty nice. It is at least better then saving your money under your bed where it does not even match inflation. So, they are two different investments that work best in two different ways.
For some stock market tips and more information on the stock market visit Shaun’s site about the stock market basics
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