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.
What is the importance of investing? ›
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 should you invest in Wells Fargo? ›
A company's earnings performance is important for value investors as well. For fiscal 2023, seven analysts revised their earnings estimate higher in the last 60 days for WFC, while the Zacks Consensus Estimate has increased $0.19 to $4.84 per share. WFC also holds an average earnings surprise of 10.3%.
Why is investing important in an economy? ›
Investment and Economic Growth. Investment adds to the stock of capital, and the quantity of capital available to an economy is a crucial determinant of its productivity. Investment thus contributes to economic growth.
What is the idea of investing consistently Why is this 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.
What is the most common purpose of investing? ›
Financial independence
The majority of investors seek to create an additional source of passive income. Investors guided by this goal try to invest the maximum possible amount of available funds every month and intensively reinvest earnings.
Why investors are important? ›
Investors play a crucial role in providing the much-needed financial support to bring your startup ideas to life. But beyond just money, they can also provide valuable insights, mentorship, and connections that can help your business grow and succeed.
Why is Wells Fargo important? ›
About Wells Fargo
Today, Wells Fargo is a leading financial services company with approximately $1.9 trillion in assets. In the U.S., it serves one in three households and more than 10% of small businesses, and is a leading middle-market banking provider.
Is it safe to 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.
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.
Business investment helps to ensure the long-term success of a company. Investment is essential for businesses to be able to grow and succeed in the long term. Without investment, businesses will struggle to finance their expansion plans and may eventually have to close down.
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.
What is the role of investment? ›
Investment plans can offer you high returns over time to build wealth and cater for your long-term objectives. Having a good savings plan is important, but it is not enough to guarantee a secure financial future. Investing your money can help keep up with inflation and increase your wealth over time.
Why is it important for investments? ›
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 goal of investing? ›
Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well.
Why is investing wisely important? ›
Making a clear decision about how much risk you're prepared to take (and sticking to it) is crucial to ensure your investments are suitable. If you take too much risk, your capital could be eroded quickly, too little risk can mean that your money isn't working hard enough.
What is investment and its benefits? ›
Investment refers to putting your money in an asset with the aim of generating income. Financial investments come in different forms, such as mutual funds, unit linked investment plans, endowment plans, stocks, bonds and more.
What is investing and why is it important for individuals to do so? ›
Investing allows individuals to grow their money and receive long-term financial security. However, investing also carries risks as well, as you can lose money depending on the type of investment and changing economic and market conditions.
What is the most important thing you can invest in? ›
Stocks generally offer a larger potential return on your investment than lower-risk investments like government bonds, but also may expose your money to higher levels of volatility. Best for: Investors with a well-diversified portfolio who are willing to take on a little more risk.
What is also an important aspect of investing? ›
Key Takeaways
In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. Investors can take the do-it-yourself approach or employ the services of a professional money manager.
