is how you build wealth over time. While saving protects your money, investing grows it.
Why Investing Matters
Here's the problem with just saving: erodes your money's value over time. If is 3% and your pays 1%, you're actually losing 2% purchasing power each year.
Investing historically beats inflation. The has averaged about 10% annual returns over the long term—even accounting for crashes.
Saving vs. Investing
| Saving | Investing | |
|---|---|---|
| Purpose | Short-term, emergencies | Long-term growth |
| Risk | Very low | Varies (low to high) |
| Returns | 1-5% () | Historically 7-10% |
| Access | Immediate | Should be long-term |
| Examples | HYSA, CDs | , , funds |
Rule of thumb: Keep 3-6 months expenses in savings, invest the rest.
Core Investing Concepts
Stocks
When you buy stock, you own a tiny piece of a company. If the company does well, your share becomes more valuable.
Bonds
are loans you make to companies or governments. They pay you back with . Generally safer but lower returns than stocks.
Instead of picking individual stocks, index funds buy a little bit of everything. One fund might hold 500 different companies. This reduces risk.
The Power of Time
Remember ? It works for investments too. Starting early matters more than investing perfectly.
- $200/month from age 25 to 65 at 7% = $525,000
- $200/month from age 35 to 65 at 7% = $243,000
Same monthly amount, 10-year head start = $282,000 more
Getting Started
Step 1: Max Out "Free Money" First
If your employer offers a 401k with , contribute enough to get the full match. This is literally free money—100% return instantly.
Step 2: Open an IRA
An (Individual Retirement Account) gives you tax advantages. You can open one at any brokerage. Start with a if you're young.
Step 3: Keep It Simple
For most people, a single "target date" fund is plenty. Pick one matching your expected retirement year and put money in. Done.
What to Avoid
- Don't try to pick individual stocks when starting out
- Don't try to time the market (buying and selling based on predictions)
- Don't panic sell during market drops
- Don't invest money you need within 5 years (use savings instead)
The Bottom Line
Investing is simpler than Wall Street makes it seem:
- Get your employer match (if available)
- Open an IRA
- Buy low-cost index funds or target date funds
- Contribute consistently
- Don't touch it for decades
Time in the market beats timing the market.