Melcar Group

Budget Guru

Investing – The Basics

Sure, having a savings account is a great way to ensure that you have money saved in the bank, however it is not the ultimate. Generally, a savings account should be used for more short term goals (2-5 years) or a specific purchase such as a new car. On the other hand, Investments such as Mutual Funds provide an opportunity for much higher return on investments. Simply put, it allows you to invest a certain amount of money and have that investment grow significantly over a certain time frame (usually longer periods such as 20 years).

Let’s compare Savings vs. Investments

Savings

Investments

Low risk

High return on investment (opportunity to make a lot of money)

Short Term needs

Long term commitment

Low, fixed interest rate

Dependent on economic situations, therefore the investment can decline in value

 

 

 

 

 

A common type of investment is a Mutual Fund, which simply means you invest in group of stocks, bonds or other investments, which are generally picked and managed by a professional. Therefore, with a mutual fund, you do not have to monitor or assess your fund on a daily or hourly basis (unless you want to and have the knowledge) because the professional investor will manage your fund for you.

Mutual funds operate on the basis that many people put money into a large fund, which creates a collection of money that is essentially used to invest. The investment professional (fund manager, personal investor etc) manages all the activity for all of the investors. Another positive aspect about Mutual Funds is the fact that the Fund Manager generally has the authority to buy and/or sell investments for the fund. On the down side, the professional that oversees the activity really does have your money in his/her hands; it really depends on your knowledge and preference on how you want to deal with this situation.  

So how do you make money on the Mutual Fund?

As the value of the investment increases, you will then have the choice to either sell the fund and essentially profit from the difference, or continue to invest into the thriving fund. It is important to do your research and ask questions because like previously stated, investments can decrease in value and if you are not currently financially stable it can create financial stress.

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April 21, 2009 - Posted by | Investments |

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