In finance, investment is the acquisition of a financial asset that generates income. The income generated may be in the form of a capital gain (profit), either realised or unrealised, or a periodic return such as dividends or interest. Investments can be made directly in securities, such as stocks and bonds, or indirectly by investing in mutual funds, exchange-traded funds (ETFs), and real estate. Investing is generally considered to be more risky than saving, but it also offers higher potential returns.
When considering investments, it’s important to understand your own tolerance for risk and time horizon. For example, if you plan to spend the money within a short period of time, you’ll want to consider safer options like high-yield savings accounts or CDs.1
On the other hand, if you’re investing for long-term goals such as retirement, you may be able to tolerate some fluctuation in the value of your investments. And you’ll likely want to include more growth-oriented assets such as stocks and ETFs in your mix.
To maximize your potential, start early and let the power of compounding work for you. And always remember to be diligent about managing your costs. This includes keeping track of fees, such as transaction and account maintenance charges, as well as investment manager fees.