Savings vs. Investing - Part 3

Saving vs. Investing – Part 3

Written by Nathan Woolard

Part Three of a three-part series

This is the final installment of our three-part series on Saving vs. Investing.  If you’ve decided you are ready to invest, the most popular instruments of investment are stocks, bonds, mutual funds, and ETFs (exchange-traded funds).

• Stocks:  When you buy stock in a company, you are essentially buying an ownership share in that company.  If the stock’s price appreciates, you can sell your share for a profit.  You can also get a return on your investment if the company pays dividends (payments made to shareholders out of a company’s revenue).
• Bonds:  A bond is fundamentally a loan to a company or government entity.  The principal is returned to the investor upon a set maturity date, but in the meantime, the investor earns interest.  Bonds are generally less risky than stocks because you know exactly when your principal will be returned and how much you’ll earn.
• Mutual funds and ETFs:  Both are baskets of stocks and bonds.  They allow you to purchase a diverse collection of stocks and bonds in one transaction, rather than choosing and purchasing them individually.  Due to their diversification, they tend to be less risky than individual stocks.

Maybe you feel comfortable taking a hands-on approach to investing, or perhaps you would prefer to have someone else make those decisions for you.  Based on your preference, you can choose from robo-advisors, online financial advisors, or traditional financial advisors. 

• Robo-advisors:  Robo-advisors are digital platforms that use computer algorithms and advanced software to build and manage your investment portfolio.  These services require little to no human interaction.
• Online financial advisors:  This level of service may still offer the same type of automated management as robo-advisors, but with the added option of consulting with a human advisor when you have questions.
• Traditional financial advisors:  This is the highest level of service.  This may be the best option if you have a complex financial situation, want more holistic advice, and want to meet with your advisor in person.

Investing through apps is also a trending option in today’s smartphone world.  Whether you are a new or experienced investor, you can manage your investments right from the palm of your hand.  While there are many, many apps to choose from, Robinhood, Acorns, and Stash are a few of the current favorites.

• Robinhood:  This app is great for active traders.  If you have investing experience and are looking for a low-cost, do-it-yourself way to trade, the Robinhood app could be a good match for you.
• Acorns:  If you don’t want to put a lot of time or effort into investing, this app is for you.  Link a debit or credit card to your account and Acorns will round up your purchases and invest the difference into an ETF portfolio chosen for you.
• Stash:  Are you new to investing?  Maybe you want to manage your portfolio yourself, but you need a little guidance.  Stash offers a hybrid of self-directed and automated options that can help you learn the ropes.

No matter what investing strategy you choose, remember that investments can be volatile over the short term, and you could possibly lose money.  Investing should be looked at as a long-term project, so don’t use money that you could need right away.  Smart investors will have an emergency fund built up, typically enough to cover at least three to six months of living expenses, before choosing to invest.