When many people think of investments, they usually think of investing in the stock market. This is understandable since stock investments have the potential to grow much faster than other types of investments.
Think about it like this: A high-yield savings account can have a return rate of around 1% or more every year, which is quite high compared to other savings and checking accounts. The stock market, however, averages around 7% to 10% growth annually.
This is a huge difference, and it makes stocks a very attractive option if you’re looking to invest some extra money.
Plus, you don’t always have to sell stocks to start making money. Dividend stocks, for example, pay out a certain amount to investors every year depending on the number of shares they have.
Of course, when it comes to investing, big rewards often come with big risks. Unlike high-yield accounts and certificates of deposit, stocks will not give you guaranteed growth. In fact, you can even lose money if the stock market goes down or if you make the wrong investment.
This is why experts often recommend that beginner investors start with index funds.
Unlike mutual funds, index funds don’t try to “beat” the market. Instead, they focus on trying to match the growth of markets. Buying an index fund that follows the S&P 500, for example, is kind of like investing in the S&P 500’s long-term growth.
On average, buying an index fund and keeping it long term will give you higher returns than a CD and will have less risk (and probably fewer service fees) than an actively managed mutual fund.