How Investing Works: Basic Concepts

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The Basics

Making money doesn't have to be complicated if you make a plan and stick to it. Here are some basic investing concepts that can help you plan your investment strategy.

Investing is the act of buying financial assets with the potential to increase in value, such as stocks, bonds, or shares in Exchange Traded Funds (ETF) or mutual funds. Investments are not guaranteed to hold or increase their value over time. You may earn larger dividends if your investments grow in value but you also risk losing some or all of your money if your investments drop in value.

While you might be wary of taking risks with your hard-earned dollars, consider that, historically, stocks have yielded larger returns than CDs, bonds and other low-risk investment products when calculated over the course of years or decades.^* This makes investing a useful tool for pursuing wealth over the long term.

Benefits of investing:

Earnings potential - Investments have the potential for higher returns than insured savings products, especially over long periods of time.
Long-term planning - Investors who start early have the greatest potential for investments to gain value. Invest wisely now to help you work towards your future goals, such as paying for college or funding retirement.

Drawbacks to investing:

Low liquidity - When your money is held in investments, it can take a few or more days to turn funds into cash compared with a savings account.
High risk - Investing does not guarantee a return, and it is possible to lose some or all of the funds invested.

Deciding Where to Invest

The key to investing wisely is to always have a plan. Your choice of where, when and how to invest should be influenced by your answers to the following questions:

What are your financial goals? Are you saving up to buy a home, pay for college or fund your retirement? Consider whether there are other, lower-risk ways to invest your money for these purposes such as a company 401(k) or 529 college savings plan.
How much time do you have before you'll need the money you're investing? Are you saving for weeks, months, years or decades? The more time you have to save, the better opportunity you have to work towards higher returns from investments.
What level of returns do you want? Stocks and mutual funds typically produce higher returns. Learn more about average rates of returns on common investment products before investing your money.
How much risk are you willing to take? Assess how financially secure you are. The more money you currently have saved, the better you may be able to manage risk without affecting your day-to-day income.

Talk to a Financial Advisor

Financial advisors with BECU Investment Services are here to help. They take the time to get to know you and understand your goals, so they can plan and implement a financial and investment strategy that's best for you. Set up a complimentary consultation or call 206-439-5720.

^*Siegel, Jeremy J. Stocks for the Long Run 5/e: the Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. McGraw-Hill, 2014.

^**Nova, Annie. "Where to earn the best interest on your money right now." 4 January, 2018. CNBC.

^***Hicks, Coryanne. "Should You Switch from Stocks to Bonds as Rates Rise?" 21 May, 2018. US. News & World Report.

^****Benz, Christine. "Experts Forecast Long-Term Stock and Bond Returns: 2018 Edition." 8 January 2018. Morningstar.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Stock and mutual fund investing involves risk including loss of principal.

An investment in Exchange Traded Funds (ETF), structured as a mutual fund or unit investment trust, involves the risk of losing money and should be considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

^*****Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. BECU and BECU Investment Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using BECU Investment Services, and may also be employees of BECU. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, BECU or BECU Investment Services. Securities and insurance offered through LPL or its affiliates are:

Not Insured by NCUA or Any Other Government Agency

Not Credit Union Guaranteed

Not Credit Union Deposits or Obligations

May Lose Value