Investing can often feel overwhelming, particularly when weighing the potential risks against returns. At Capital City Financial Partners, we believe that understanding the balance of risk and return is important when making decisions that align with your financial goals. We often hear the question, “Why not just keep my money in my savings account?” While a savings account is a safe choice, exploring other investment options may offer more substantial benefits over time. Let’s examine why considering alternative investments might be a strategic move for your financial future.
Risk and Return For Your Accounts
Savings Account
Keeping your cash in a regular savings account is a safe option. However, you might be losing out on potential growth by doing this. When you invest, you allow your money to grow in value over time, benefiting from compounding and long-term growth.
Many savings accounts offer a 0.45% interest rate as a reward for keeping your money in the account. For instance, if you had $1,000 in a savings account for a year, you would end up with $1,004.50 at the end of the year. This option is generally considered “Low Risk, Low Return.”
High-Yield Savings Accounts
A high-yield savings account is another “safe” option to consider. It provides a significantly higher interest rate than traditional savings accounts. The annual percentage yield (APY) of accounts like these can be around 5%. So, if you had that same $1,000 in a high-yield savings account for a year, you’d end up with $1,050 at the end of the year. This option is generally considered “Low Risk, Medium Return.”
Risk and Return For Your Stocks
Stocks represent a share in the ownership of a company. When a company performs well, the stocks increase in price, generating more money for the shareholder. Similarly, if a company does poorly, the stocks decrease in price, potentially yielding a loss for the shareholder. The stock market is volatile, with frequent fluctuations, making it challenging to predict stock performance over time. Therefore, stocks generally offer a “High Risk, High Reward” potential.
Consider Risk and Return When Exploring Other Investment Options
In addition to savings accounts and stocks, there are various other investment options to consider, each with its own risk and return profile:
- Real Estate: Investing in property can provide rental income and capital appreciation. However, it can come with risks like property market fluctuations and maintenance costs.
- Bonds: Generally considered safer than stocks, bonds offer repeating interest payments but can be affected by interest rate changes.
- Commodities: Investing in physical goods like gold or oil can provide a hedge against inflation but are still subject to market volatility.
- Mutual Funds and Index Funds: These allow you to invest in a diversified portfolio of stocks and/or bonds, spreading the risk.
- Annuities: Insurance products that provide a steady income stream, typically for retirees, with varying degrees of risk based on the type.
- Certificates of Deposit (CDs): Fixed-term investments with low risk and modest returns.
- Collectibles: Items like art, antiques, and rare coins can gain value but are also highly speculative investments.
Please note that all investments carry risk and past performance does not indicate future results. It is advantageous to consult with a financial advisor to determine the best strategies for your individual situation.
Questioning Your Risk and Return? Seek Professional Guidance
Investment options come with different kinds of risks and returns. At Capital City Financial Partners, we’re here to help you make informed decisions that align with your financial goals. Schedule an appointment with one of our advisors and take the first step toward a secure and prosperous financial future.
Schedule a meeting through our website or by calling our office (803)-782-0671. Your peace of mind is our priority.
Want to learn more? Visit our YouTube series, “Ask An Advisor” to gain more general knowledge on different financial topics.
Source: “Investor Bulletin: Publicly Traded Business Development Companies (BDCs),” U.S. Securities and Exchange Commission, 09/25/2020.
