subject: Cds Vs Stocks [print this page] Stocks and CDs are both very common investments and can be used to help you grow your money and build your wealth. But they are two extremely different approaches and only one will help you build real wealth.
First of all, what is a CD? CDs are simply investments that banks offer. With a CD you can invest your money into a bank where they will pay you an agreed upon annual return, usually between 1-4%. Once you have invested your money it will stay invested for a set amount of time if you want to get the full return.
This is considered to be a great way to safely keep up with inflation, but that is all it does, it does not help to grow your wealth only to maintain it. There is another problem to using this strategy to invest your money.
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.
Banks will take the money that is invested into them and then turn around and invest it themselves into things like loans and buying fundamentally strong dividend paying stocks. This way they can grow that money faster then the interest they have to pay.
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.
Stocks represent ownership of a company. Over the long term they have been a very powerful way of investing your money offer a much higher return then other many other assets out there.
So, does that mean that you should stop investing into safer assets like CDs and go right to the meat an bones that come from riskier investments with a higher growth potential? Well that depends on what your goals are and how much of an investor you want to be. If you want to study the market and invest for years then stocks can be very powerful.
Now, on the other hand if you do not want to take the time to learn to invest or if you just want to have a safety net that you know will be there, then investing into something safe with a smaller return will help you get there easier.
