Investing is when you buy securities which will hopefully provide future income. This income could be in the form of interest payments, stock dividends or capital gains (when you sell a security for more than you paid for it).
These securities can take many forms: stocks, bonds, certificate of deposit (CDs), high interest savings accounts and many others. All of these different types of investments will be discussed in future posts.
Different investments have different risk levels. For example stocks, which represent part ownership of a company, are priced according to supply and demand, so they will go up and down depending on other investors expectations of the company’s future earnings.
If a company does very well, then the stock price might trade for a much higher price than in the past. If a company does poorly, then the stock price will probably head downward. In the worst case scenario, the stock will be worth zero if the company goes out of business. Clearly stocks can be considered a risky investment since there is no guarantee on future profits or losses.
Certificate of deposits (CDs) on the other hand, are considered a much less risky investment because the amount you invest and interest payments are guaranteed by the institution that issues the CD. They are also insured by the FDIC if issued by a bank or the NCAU if issued by a credit union.
The odds are extremely high that if you buy a CD then you will not lose any money and will receive the interest payments promised.