Grow Your Savings: To Invest or Not to Invest?
Spring is finally here and whether you’re gearing up for summer fun or just “spring cleaning” your finances— this time of year is all about growth. And as our second installment of our “Grow Your Savings” series, we’re talking about one way you can boost your bank account (after you’ve paid off that credit card debt, that is). If you’re looking to take a more advanced step in your financial journey, you may want to consider investing your extra cash in hopes that it grows and grows just like the flowers and greenery of the spring season.
But the stock exchange can be intimidating— especially for first time investors! We’re going over some tips to help you navigate the world of investing so that you can weigh the pros and cons and decide whether this savings tactic is right for you.
Do your research
First thing’s first. If you’re going to invest your hard earned dollars into someone else’s company, you’ve got to do your research if you want to protect your investment. While research can’t guarantee the outcome of your investment, it can certainly give you a better idea of the company’s financial status and help guide your decision. You can request an investment professional help you with this step, or do some research on your own.
Here are some tips to help guide your research process:
- Look into the CEO’s history— did their previous companies grow or flop?
- Read the company’s annual report
- Ask yourself (as a consumer): does this business model help me? Is this a product I’d buy?
- Evaluate the company’s debt-to-equity ratio— generally, the lower debt-to-equity ratio, the less risky the investment
Stocks vs. bonds
Once you’ve found a company that could be a good place to invest your money, it’s time to decide what kind of investment you want to make. According to the Securities and Exchange Commision, most companies will offer stocks or bonds to investors— each having different structures and risks.
- Investor puts money toward the company
- If the company shows strong potential for profit, stock may go up in value
- You may make more money than your initial investment when you sell (and possibly more money than a bond investment)
- Risk: If the company does poorly you could lose part or all of your investment
- Investor essentially “lends” the company money and the company promises to return money plus interest
- Risk: If the company goes bankrupt, you might lose the entirety of your investment— but if there is money left, bonds will be paid back before stockholders
How do you make or lose money on an investment?
The Securities and Exchange Commision outlines why some investments turn out to be profitable and why others don’t end up going so well.
You might make money if…
- The company is turning enough profit to pay you interest on your bond or dividends for your stock investment
- The company does better than its competition
- The company generates attention on the stock market, and other investors want to buy your share for an inflated cost
You might lose money if…
- The company is not performing on par with its competitors
- Consumers don’t see value in the company (they are not making a profit)
- Company officers fail at managing the business’ finances or other important facets well
- Other investors decide not to invest because the stock price is too high
- The company is being managed dishonestly— for example, if company executives are using company cash to cover their extravagant personal expenses
- The company is dishonest about their financial figures (tricking investors)
- Brokers manipulate the cost to reflect a higher number than what the stock is truly worth
- You sell your investment when the market is down
As you can see, there are much more opportunities to lose money on your investment— and how your investment turns out can never really be guaranteed. So keep this in mind! On the other hand, the right investment has the potential to have a huge positive impact on your savings!
To invest, or not to invest?
Investing can be a bit of a gamble— so before you move all of your savings over to an up-and-coming startup or niche industry, you’ll want to do your research! Consider various investment tactics, create a plan for your savings, and start following the market with a stock trading app. Most importantly, don’t be afraid to ask for help from a financial professional!