Investment Basics

Learning the fundamentals of investing will help you meet your financial goals such as planning to buy a home, helping finance your child’s education or saving for retirement.  In this section we provide investment principles and discuss the difference between saving and investing, illustrate the risk-rate of return trade-off, explain the importance of the time value of money and asset allocation, and challenge you to think about your personal finance risk tolerance. 

Unit 1: Investing Basics

Why Invest?

Investing means taking on some risk by buying an asset with the hope that it will increase in value over time.  To invest you will need to purchase financial products such as stocks, bonds, mutual funds or an IRA.  Each investment has its own risks.  But the reward is the potential for profit.  With proper diversification and the expertise of a financial planner, you can build wealth and reach your financial goals. 

Define Your Goals

Investment goals must follow a financial plan.  Ask yourself what you want. List your most important goals first. Decide how many years you have to meet each specific goal, how much money you have to save or invest, and determine investment options that fit your time frame.

As you get started, here are some things to consider:

  • determine your short-term and long-term investment goals
  • evaluate your investment choices—401K, IRA, Stocks, Mutual Funds, Annuities
  • work with your credit union’s financial advisor to reach your financial goals or learn more about investment options

The Difference Between Saving and Investing

Although the words "saving" and "investing" are often used interchangeably, there are differences between the two.

  • Saving provides funds for emergencies and for making specific purchases in the near future, usually three years or less. Because of these characteristics, savings yield a low rate of return.   
  • Investing focuses on increasing net worth and achieving long-term financial goals. Investing involves risk and is to be considered only after you have adequate savings.