An Investor Can Invest Money With A Particular Bank

What is the difference between saving and investing?

Saving is putting money aside for future use. It's important to save so you can cover fixed expenses, like mortgage or rent payments, and to make sure you're prepared for emergencies. Generally, people put their savings in bank accounts, where up to $250,000 is insured by the Federal Deposit Insurance Corporation (FDIC).

Investing is when you put your money to work for you. You buy an investment, like a stock or bond, with the hope that its value will increase over time. Investments have the potential for greater returns than you'd receive by putting your money in a bank account.

Read Important Disclosures: Source: Schwab Center for Financial Research. The moderate model portfolio (allocated 35% large-cap stocks, 10% small-cap stocks, 15% international stocks, 35% fixed income and 5% cash investments) may not be suitable for all investors. Returns assume reinvestment of dividends and interest. Fees and expenses would lower returns. This chart represents a hypothetical investment and is for illustrative purposes only. The actual rate of return will fluctuate with market conditions. Past performance is no guarantee of future results.

This opportunity to earn more money comes with additional risks—including the loss of some or all of your investment. Different types of investments have different levels of risk, so it's important to understand your risk tolerance Tooltip Risk tolerance is an investor's willingness to take on risk with his or her investments —or your appetite for risk. If you're working toward a long-term goal, it's a good idea to consider investing as opposed to saving. Recently, savings rates haven't kept up with the rate of inflation. This means that if you put all your cash in savings, the actual purchasing power of your money could shrink over time.

Read Important Disclosures: Source: Schwab Center for Financial Research. The "nominal" amount is the stated value. The "real" amount is the value adjusted for the effects of inflation. Inflation is represented by the change in the Consumer Price Index for AII Urban Consumers (CPI-U). Over the last twenty years, inflation has averaged 2.1%. But during some periods in the past, the average was much higher: It averaged 6.2% from 1970-1989. Past performance is no indication of future results.

Why should I invest?

Investing can help you achieve financial goals, like buying a home or funding your retirement. By investing, you're putting your money to work to reach these goals. Let's see how it works.

Read Important Disclosures: Source: Schwab Center for Financial Research. The chart above is hypothetical and for illustrative purposes only. Earnings assume a 6% annual rate of return including the reinvestment of dividends and capital gains and do not reflect the effect of fees or taxes which would reduce the overall amount.

When should I invest?

Generally, sooner is better. Historically, the longer you invest, the less impact the short-term ups and downs of the market have on your return.

Many investors sit on the sidelines, waiting for the "right" time to invest. Unfortunately, timing the market is virtually impossible. Instead, consider just getting started and remember this old investing adage: Time in the market is more important than timing the market.

Read Important Disclosures: Source: Schwab Center for Financial Research. The chart above is hypothetical and for illustrative purposes only. Returns assume reinvestment of dividends and capital gains. Fees and expenses would lower returns. Earnings assume a 6% annual rate of return and do not reflect the effect of fees or taxes which would reduce the overall amount.

How much should I invest?

It depends on how much you have, as well as your goals and timeline (also called your time horizon). But a good rule of thumb is to invest the maximum you can comfortably afford, after setting aside an emergency fund, paying off high-cost debt, funding daily living expenses, and saving for any short-term goals. By investing on a regular basis, over time you can potentially achieve greater returns through compounding Tooltip Compounding is the increasing value of an investment due to the return earned on both the initial investment and subsequent returns. .

Is investing risky?

Investing has risks. The goal is to manage them. We believe the best way to do this is to have a plan, know when you'll need the money, and diversify your portfolio.

Diversification spreads your money around different types of investments, so you're not putting all of your eggs in one basket. You want to divide your money among stocks, bonds and cash investments based on your risk tolerance and timeline. Dividing even further, you could include different types of stocks, such as large-cap Tooltip Large-cap refers to a company with a market capitalization of more than $10 billion. Market capitalization is calculated by multiplying the stock price by the number of shares outstanding. , small-cap Tooltip Small-cap refers to a company with a market capitalization of less than $2 billion. Market capitalization is calculated by multiplying the stock price by the number of shares outstanding. and international. And within those divisions, you could have stocks representing different sectors (for example, technology and health care). The ultimate goal is to own investments that don't historically move in tandem.

Read Important Disclosures: The indexes used are: S&P 500® Index (large-cap equity), Russell 2000^® Index (small-cap equity), MSCI EAFE Net of Taxes (international equity), Bloomberg Barclays U.S. Aggregate Bond Index (fixed income), Citigroup 3-Month U.S. T-Bills (cash equivalents). The Moderate Allocation is 35% large-cap equity, 10% small-cap equity, 15% international equity, 35% fixed income, and 5% cash, using the indexes noted. Past performance is no guarantee of future results. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product. Dividends and interest are assumed to have been reinvested, and the example does not reflect the effects of taxes or fees. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

What are some common types of investments?

Stocks

Stocks (equities) represent ownership in a company.

As a shareholder, you can achieve returns in two main ways:
1. The price of the stock may increase, allowing you to sell at a profit.
2. The company may distribute some of its earnings to stockholders in the form of dividends.

Stocks are considered relatively risky, because the stock price may also decrease and there is no guarantee you'll be paid dividends.

How do I choose a stock?

There are many ways to pick stocks. Longer-term investors can use fundamental analysis Tooltip Fundamental analysis is a research methodology that focuses on a company's management structure, competitors, industry position, growth rate, growth potential, income, and revenues so you can decide if it's a good value. to research stocks.

Shorter-term traders may rely on technical analysis Tooltip Technical analysis is a research methodology that focuses on patterns within stock charts as a way to try to forecast future pricing and volume trends. , which assumes future market patterns will be similar to previous ones.

Schwab provides clients with stock screening tools, research and ratings.
How do I buy a stock?
If you know which stock you want to buy, look up its ticker symbol. Then log into your brokerage account and place a trade order. You can do this with a:
- Market order Tooltip Market order is an order to buy or sell a security at the best available price. Keep in mind that a market order guarantees execution, but the exact price is not known in advance. , if you want your order to go through immediately
- Limit order Tooltip Limit order is an order to buy or sell a security at a specified price or better. It guarantees a price that is at least as good as your limit, but there's a chance the order will not get filled. , if you have a maximum dollar amount you want to spend
- Stop order Tooltip Stop order is an order to buy or sell once the price of a security reaches a specified price. It ensures a high probability of execution at a predetermined price, but there's a chance your order won't be filled at the price you specified. , if you want to buy once the stock hits a certain price.
The stock will show up in your account once the order executes.

Open a Schwab Brokerage account.

Bonds

A bond represents a loan you make to a government, municipality or corporation (issuer).

In return, that issuer promises to pay you a specified rate of interest and to repay the face value after a certain period of time, barring default.

Bonds can provide a predictable income stream because they generally pay bondholders interest twice a year. They're also useful for preserving capital, as they promise to repay the original loan amount upon maturity. As with any investment, bonds have risks such as default risk and reinvestment risk. Bonds tend to be less volatile than stocks, but an issuer could potentially default on its loan or have the loan called (this is when an issuer returns principle and stops interest payments before the bond matures).

How do I choose a bond?

The bond market is much bigger and more complex than the stock market.

If you're just starting out, bond funds can be a good option as they offer diversification and professional management.

If you prefer individual bonds, you can start by looking at the issuer's credit quality. Higher-quality bonds tend to offer lower yields with less risk. Lower-quality bonds are riskier—including the risk of default Tooltip Default is failure to repay a loan. —but can offer higher yields. You also want to consider the maturity date Tooltip Maturity date is the date when a bond issuer must repay the principal or the original investment to the bondholder. , when your original investment will be repaid, and the coupon Tooltip Coupon is the annual interest rate a bond issuer promises to pay the bondholder each year , the annual interest rate paid on the bond.

Find bond funds.
Use bond screening tools and research.
How do I buy a bond?

Mutual funds

A mutual fund pools money from many investors and then invests that pool in a broad range of investments, such as stocks, bonds and other securities.

The fund is managed by an investment advisor. When you buy a mutual fund, you buy a stake in everything the fund invests in and any income those investments generate. Mutual funds make it easy to build a diversified portfolio and get professional management, so you don't have to research, buy, and track every security in the fund on your own.

How do I choose a mutual fund?

If you seek to outperform the market, consider actively managed funds. It's important that you understand the fund's investment objective and strategy before investing, as there are no guarantees that the fund will actually outperform. Keep in mind also that actively managed funds tend to have higher expenses.

You can also consider passively managed index funds. These funds simply aim to track their benchmarks before fees and expenses. Index funds typically have lower costs and are more tax efficient.

Learn more about active vs passive funds.
How do I buy a mutual fund?

You can buy these funds either directly from the fund company or through a broker dealer. Just look up the ticker symbol of the fund you'd like to buy and place an order. Note: Mutual fund trades are executed once a day after market close.

Find out more about mutual funds.

Exchange-traded funds (ETFs)

An exchange traded fund (ETF) is an investment fund that holds assets like stocks, bonds or commodities.

Most ETFs track market indexes, which means that they're trying to replicate the performance of a certain part of the market. For example, an ETF that tracks the S&P 500^® Index is trying to mirror the performance of the broad stock market. ETFs trade like stocks on an exchange and their price changes throughout the day, as shares are bought and sold.

How do I choose an ETF?

Look for funds that represent the part of the market you're looking to invest in.

Then look at costs. There are three different types to consider: the operating expense Tooltip Operating expenses cover the management and marketing of investment products, such as mutual funds and ETFs. They can include management fees, 12b-1 fees (paid by the fund out of fund assets to cover distribution expenses and sometimes shareholder service expenses), and other expenses. , bid-ask spread Tooltip Bid-ask spread is the difference between the highest price a buyer is willing to pay for an investment and the lowest price a seller is willing to accept to sell it. , and trading commissions Tooltip Commissions can come in several forms. The most common ones are fees for trades placed to buy and sell investments in your portfolio. Over time, these fees can add up to a substantial amount, especially if you place frequent trades on your own or through an investment professional. .

To learn more, read ETF vs. Mutual Fund: It Depends on Your Strategy.
How do I buy an ETF?

You can buy and sell ETFs through a brokerage account. Just enter the ticker symbol of the ETF you'd like to buy and place your trade.

Find out more about ETFs.

How can I invest without paying a lot of fees?

Every dollar you pay in fees is one that can't generate compounding returns. That said, investing generally costs money. So what can you do?

Look for brokers that charge low trading commissions Tooltip Commissions can come in several forms. The most common ones are fees for trades placed to buy and sell investments in your portfolio. Over time, these fees can add up to a substantial amount, especially if you place frequent trades on your own or through an investment professional. .
Consider funds with low operating expenses Tooltip Operating expenses cover the management and marketing of investment products, such as mutual funds and ETFs. They can include management fees, 12b-1 fees (paid by the fund out of fund assets to cover distribution expenses and sometimes shareholder service expenses), and other expenses. .
Look for no-sales load Tooltip Sales load is paid to a financial institution for buying or selling securities (typically mutual funds) on your behalf , no transaction fee mutual funds that allow you to buy and sell shares without paying these common fees.

For more on this, read Fees and Minimums.

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