Stocks Versus CDs

There are a few different types of investments out there. But two very common ones are stocks and CD’s. Each one offers its own solution to saving and investing money, but they are completely difference.

First of all, let’s look at what these investments actually are, starting with CDs. A CD is simply an investment that banks offer. Anyone can invest their money into a CD and earn a secured return on their money. This return is normally small, 1-4% annually, however it is safe and that is the trade off.

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.

Banks will take the money that is invested into them and then turn around and invest it themselves into things like loans and buying fundamentally strong dividend paying stocks. This way they can grow that money faster then the interest they have to pay.

Even though these investments don’t come with a guarenteed return and there is even the potential to lose money, the potential for someone who educated themselves in investing is so great that only paying out 1-4% in interest really is a fantastic deal for them.

Some investors have gotten smart and decided to stop investing into bank savings plans and other similar plans and start investing into stocks and other investments themselves making larger returns.

Stocks are basically a small percentage of a company. If you pick the right companies to invest into then it has the potential to make an extremely massive return and definitely can grow your wealth.

So, should you switch out from CDs to stocks? Well, stocks definitely have more potential. But CDs are also safer. If you have a long time to invest then you will find more opportunities by studying the market and making your own decisions.

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 tips and more information on the stock market visit Shaun’s site about the stock market basics Unique version for reprint here: Stocks Versus CDs.

Acceptions:

Financial Accounting: Tools for Business Decision MakingFinancial Accounting, 5th Edition provides students with an understanding of fundamental concepts necessary to use accounting effectively. Starting with a “macro” view of accounting information, the authors present real financial statements. They establish how a financial statement communicates the financing, investing, and operating activities of a business to users of accounting information. Kimmel, Weygandt and Kieso motivate students by grounding the discussion in the real world, showing them the relevance of the topics covered to their future.