by Jenny Dsouza
Published Mon, Dec 26th 2016, 09:14 | Business
Outside of winning the lottery (the chances of which the official Powerball website puts at about 1 in 175 million), the best way to ensure future financial stability is to start saving as soon as possible. If you really want your money to grow, you need to think seriously about where you put it.
There are many options for where and how to best saving plans money for the future, including a basic savings account, which is relatively low-risk, but offers only small returns on your investment.
Tilp says putting the money in a savings account is parking your money in a safe place that is guaranteed not to lose money (as long as it is an FDIC-insured bank or NCUA-insured credit union). But it also gives permission to the saving institution to use your money to make loans and other investments so the bank can increase its profits.
“The bank returns some of this to you in the form of a small amount of interest. But, because they are taking the risk, then they will make a greater return.”
Certificates of deposit (CDs) and money market accounts are higher-risk than basic savings, but still won’t deliver the big payouts of a long-term investment in the stock market. Tilp says that these investments are best for more immediate savings that you best saving plans to use three to five years in the future.
When investing money for long-term goals—for example, if you want to be financially independent by the time you retire—stocks, bonds and mutual funds offer the potential to earn your best saving plans higher rates of return.
By giving your money the opportunity to grow over time, you also take on the risks that there will be some dips and losses along the way.
“With stocks and bonds, you are having the money work for you, whereas with a money market, CD or savings account, you are letting someone else use your money to work for them,” Tilp says. There is more risk in stocks and bonds, but there is also greater potential reward.
Source: https://www.smartaboutmoney.org/Topics/Saving-and-Investing/Save-for-the-Future/The-Right-Way-to-Save-Your-Money