Two common investments out there are stocks and CDs. Each will give you a return on your money, but they are not equal. Of these two investments only one will help you to grow your money and achieve financial freedom.
First of all let’s look at what a CD actually is. A CD stands for Certificate of Deposit. This is where you invest your money into a bank and that bank agrees to pay you a set amount of interest on that money. Normally this is somewhere between 1-4% a year on that money.
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.
Few people take it a step further and ask, “Why is this bank willing to pay me a guaranteed return simply for me letting them borrow my money? Don’t they run a business and want to make money themselves?” Of course they do, and they do make money because they are investors themselves.
What banks will do is take the money that is invested into them and invest into strong dividend paying stocks and give out bank loans and do all sorts of things that make them more money.
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.
A stock is simply part of a company. When you buy a stock you are just investing into the company that you bought the stock in. So if you do your research and invest into powerful stocks then it can lead to a large return.
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.
On the other hand if you just want to have a safety net and have that safety net keep up with inflation, then of course you don’t want to invest it into something that can potentially lose you money. They are really two different types of investments which work better in two different ways.
For some stock tips and more information on the stock market visit Shaun’s site about the stock market basics
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