SECTION 5 OF 8
The basics
Saving keeps money available for nearer needs. Investing puts money into assets that may grow over time, but can lose value. A stock is a small ownership share in a company. A bond is a loan to an issuer. A fund pools money to hold a collection of investments.
Diversification means spreading money across different investments instead of relying on one. It can reduce some risks, but cannot guarantee a profit or prevent every loss. Time horizon means how long before the money is needed. Fees and the possibility of losses also matter. Compounding means earnings can themselves earn more; investment growth is never guaranteed.
A simple example
Pat needs repair money soon and retirement money much later. Those two goals have different timelines. They do not necessarily belong in the same kind of investment.
Useful resources
- Investor.gov: investment products and risks (opens in a new tab)
Definitions of common investment types and the risks and costs to understand.
- Investor.gov: asset allocation and diversification (opens in a new tab)
Explains how time horizon, risk and diversification relate to investing.
- Investor.gov: compound interest calculator (opens in a new tab)
An educational calculator for exploring how assumptions affect growth. Results are hypothetical.
How this connects
Investments are one part of the picture. Next, see how Social Security, pensions, work and savings can become retirement income.
U.S. retirement education · Examples are illustrative. How we create these resources.
From the creator of Friendly’s Financial on YouTube. General education, with no personal financial recommendations.