How your investment dollars can grow
At its most basic, investing is about turning a dollar into multiple dollars over time. There are three primary ways to do this:
Leveraging the time value of money
With investing, time is money. That’s because the longer you stay invested, the more interest you can receive from fixed income investments and the greater your chance of realizing capital appreciation from stocks. Also, since financial markets can go up and down in value over short time periods, a long investment time horizon helps you balance the inevitable market drops with the equally inevitable market gains.
Here are two ways to use time to your advantage:
Investing entails risk—but you can manage it
There are several different types of risk, some tied to stocks and others more associated with bonds. But as a long-term retirement investor, you’re primarily concerned with two kinds of risk:
Market risk and retirement risk are the opposing sides of your investing coin. Taking on more market risk potentially lowers your retirement risk. And the opposite is true, too. But investing is more about trying to make money and less about trying to avoid losing money. It’s a delicate balance. One way to maintain that balance is by diversifying your investing dollars across different types of stocks and bonds so you don’t have all your investment eggs in one risk basket.
Become an educated investor
This article barely scratches the surface of what you need to know to make smart investing decisions. Invest in some home study so you can expand your knowledge and gain the confidence to manage your retirement savings.