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CDs Versus Stocks

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Two common investments out there are stocks and CDs. Each will give you a return on your money, but they are not equal. Of these two investments only one will help you to grow your money and achieve financial freedom.

First of all let’s look at what a CD actually is. A CD stands for Certificate of Deposit. This is where you invest your money into a bank and that bank agrees to pay you a set amount of interest on that money. Normally this is somewhere between 1-4% a year on that money.

It is a very safe way to invest and helps you to keep up with inflation. But that does not mean that it is all good, there is one problem with this strategy.

Nobody cares to ask how banks can afford to give you a guaranteed return that seems generous. Well the reason is because they too invest.

Banks will take the money that is invested into them and then turn around and invest it themselves into things like loans and buying fundamentally strong dividend paying stocks. This way they can grow that money faster then the interest they have to pay.

Although these investments do have some risk in them, you cannot invest into the stock market and get a 100% guarenteed return off of your investment. However they have so much potential that paying out a 1-4% interest for the opportunity to invest into them is almost nothing.

Some investors have gotten smart and decided to stop investing into bank savings plans and other similar plans and start investing into stocks and other investments themselves making larger returns.

Stocks represent ownership of a company. Over the long term they have been a very powerful way of investing your money offer a much higher return then other many other assets out there.

Does this mean that you should not invest into things that are safe and offer a low return? Well it kind of depends on your goals and the amount of effort you want to put into investing. If you want to grow your money and are willing to put in the time and energy to get good at it then investing into something like stocks can be a better alternative.

Now, on the other hand if you do not want to take the time to learn to invest or if you just want to have a safety net that you know will be there, then investing into something safe with a smaller return will help you get there easier.

For some stock market investing tips and more information on the stock market visit Shaun’s site about the stock market basics Also published at CDs Versus Stocks.

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