Having a savings account isn’t enough
Saving money is important, but it’s only part of the story. Smart savers start by building sufficient emergency savings within a savings account or through investment in a money market account. But after building three to six months of easy-to-access savings, investing in the financial markets offers many potential advantages.
Why is investing important?
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value.
The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
The power of compounding
Compounding occurs when an investment generates earnings or dividends which are then reinvested. These earnings or dividends then generate their own earnings. So, in other words, compounding is when your investments generate earnings from previous earnings.
If you invest in a dividend-paying stock, for example, you might consider taking advantage of the potential power of compounding by choosing to reinvest the dividends. To help increase the potential benefits of compounding, start investing as soon as possible and automatically reinvest your dividends and other distributions. Read about the power of compounding and the cost of waiting.
The risk-return tradeoff
Different investments offer varying levels of potential return and market risk.
- Risk is an investment’s chance of producing a lower-than-expected return or even losing value.
- Return is the amount of money you earn on the assets you’ve invested, or the investment’s overall increase in value.
Investing in stocks, for example, has the potential to provide higher returns. In contrast, investing in a money market or a savings account likely won’t offer the same return potential but is considered less risky than investing in stocks.
The amount of risk you carry depends on your appetite — or tolerance — for risk. Only you can decide how much risk you’re willing to take for the potential of higher returns. But if you’re seeking to outpace inflation, taking on some risk may be necessary. An increase in risk may provide more potential for your money to grow.
Diversification can reduce risk
Learn the basic investing types
When it comes to investing, you have many options. Before deciding which investment vehicles are appropriate for you, it'll help if you know what they are, how they work, and why they may be a good fit for your needs.
Learn about investment types >
Stocks are subject to market risk, which means their value may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Investments in equity securities are generally more volatile than other types of securities.
Investing involves risk including the possible loss of principal.
Dividends are not guaranteed and are subject to change or elimination.
Investment and Insurance Products are:
- Not Insured by the FDIC or Any Federal Government Agency
- Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate
- Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested
Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC (WFCS) and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.
Retirement Professionals are registered representatives of and offer brokerage products through Wells Fargo Clearing Services, LLC (WFCS). Discussions with Retirement Professionals may lead to a referral to affiliates including Wells Fargo Bank, N.A. WFCS and its associates may receive a financial or other benefit for this referral. Wells Fargo Bank, N.A. is a banking affiliate of Wells Fargo & Company.
Insurance products are offered through non-bank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.
Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
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FAQs
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
Should I invest with Wells Fargo Advisors? ›
Wells Fargo Advisors insurance and investment products aren't backed by the FDIC or other government agencies. That said, you're always taking some amount of risk when you invest your money. Ultimately, Wells Fargo Advisors is a good option for investment services and other financial products.
Why is investing important? ›
As savings held in cash will tend to lose value because inflation reduces their buying power over time, investing can help to protect the value of your money as the cost of living rises. Over the long term, investing can smooth out the effects of weekly market ups and downs.
What is the primary purpose of investing? ›
Investment definition is an asset acquired or invested in to build wealth and save money from the hard earned income or appreciation. Investment meaning is primarily to obtain an additional source of income or gain profit from the investment over a specific period of time.
Why is investment important in the economy? ›
Investments create economic growth & prosperity
This will succeed if the goods or services produced to provide people with a benefit with which they can satisfy their needs. Thus, the additional social benefit generated by an investment is what increases people's quality of life and constitutes economic growth.
Is my money safe with Wells Fargo Advisors? ›
At Wells Fargo Advisors, cash deposits are covered by FDIC insurance for a total of at least , if you are enrolled in our Bank Deposit Sweep Program. * Through this program, uninvested cash balances (principal and interest) are automatically deposited, or “swept,” into three affiliate banks.
Is investing with an advisor worth it? ›
The right decision is going to depend on your unique financial situation and how much you can afford to pay an advisor. If all goes well then the length of time shouldn't be an issue to you, financially, because the returns can more than pay for the advisor's contributions.
Is it better to save or invest? ›
Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.
Why is investing consistently important? ›
Consistency is the key to give yourself the chance to generate the best potential return on your investment. Automatic investing – setting up a regular transfer of funds into an investment – can help avoid taking the risk of timing the market or missing out on opportunities.
How does investing make you money? ›
Your investments can make money in 1 of 2 ways. The first is through payments—such as interest or dividends. The second is through investment appreciation, aka, capital gains. When your investment appreciates, it increases in value.
Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well.
What is the key idea of investing? ›
Over time, as your investments earn interest, if you reinvest those earnings, you earn interest on your interest. This is the core idea of compound growth. Without any extra effort on your part, compounding interest and time work together to potentially increase your investment returns.
What is the main point of investment? ›
The Bottom Line
An investment is a plan to put money to work today to obtain a greater amount of money in the future. It is also the primary way people save for major purchases or retirement. With stocks, bonds, real estate, or commodities, individuals can create a diversified portfolio.
Why do we need investment? ›
Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.
What is the general importance of investing? ›
Investing helps you grow your money which can then be used to meet your future financial goals. When you invest your money, it is likely to provide you with returns. These returns can either be guaranteed`` or market-linked depending on where you invest your money.
Why is investment important to business? ›
There are a number of reasons why businesses choose to invest their money. For some businesses, investment is a way to generate additional revenue. For others, its a way to protect and grow their existing assets. And for some businesses, investment is a way to do both.
Can Wells Fargo Advisors be trusted? ›
Wells Fargo Advisors is not a trusted broker because it is not regulated by a financial authority with strict standards. We would not open an account for ourselves with them. If you want to stay safe, only sign up with brokers that are overseen by a top-tier and stringent regulator.
Is Wells Fargo brokerage good? ›
WellsTrade offers some convenient features for existing Wells Fargo customers, but for the average trader, this brokerage account delivers a rather basic investing experience. You'll get the industry standard of commission-free stock and ETF trades, and access to about 1,850 no-transaction-fee mutual funds.
What percent do Wells Fargo Advisors charge? ›
Fees Wells Fargo Advisors charges for its services
For investment advisory services, Wells Fargo generally charges clients based on a percentage of assets under management. The rate clients will pay varies based on the product and services used, generally ranging from 2% to 2.50%.
Can you get money from Wells Fargo Advisors? ›
Only you can add or withdraw funds from your account, or request Wells Fargo Advisors to do so on your behalf.
