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Investing 101: Your Intro Guide

January 14, 2025

Investing may seem like a complex topic, but it’s a critical step in building financial security and achieving your long-term goals. Whether you’re saving for retirement, a home, or your children’s education, understanding the basics of investing can help you make informed decisions. Here’s what you need to know to get started.

Why should you invest?

To Keep Ahead of Inflation – Inflation reduces the purchasing power of your money over time. For example, with an average annual inflation rate of 3%, something that costs $100 today could cost $181 in 20 years. Investing allows your money to grow and keeps it from losing value due to inflation.

To Take Advantage of Compound Interest – Compound interest is a powerful force. When your investments earn returns, those returns are reinvested, allowing you to earn interest on both your original investment and the accumulated earnings. Over time, this compounding effect can significantly increase your wealth.

To Maximize Your Investment Period – The earlier you start investing, the more time your money has to grow. For instance, investing $5,000 annually for 30 years at a 6% return could grow to over $395,000—more than double your total contributions of $150,000. Delaying investment can make it harder to reach similar goals.

Understanding Investment Risks

All investments carry some level of risk, including the potential loss of your principal. Risk tolerance varies among individuals and is often categorized as:

  • Aggressive: High risk, high reward.
  • Moderate: Balanced risk and return.
  • Conservative: Low risk, lower potential returns.

The relationship between risk and return is known as the risk/return tradeoff—the more risk you take, the greater your potential reward, but also the higher chance of loss. Understanding your comfort level with risk is key to developing an investment strategy that aligns with your financial goals.

Types of Investments

Cash Alternatives – Low-risk, short-term options such as savings accounts and certificates of deposit (CDs). These offer stability and liquidity but generally lower returns.

Bonds – Bonds are loans to corporations or governments and typically pay fixed interest rates. They’re considered safer than stocks but may provide lower returns. Bonds can also be sold before their maturity date.

Stocks – When you purchase stock, you buy a share of ownership in a company. Stocks can yield returns through dividends or by selling shares at a higher price than you paid. They come in various types:

  • Growth Stocks: High potential for rapid growth.
  • Value Stocks: Undervalued companies with solid fundamentals.
  • Income Stocks: Provide consistent dividends.

Mutual Funds – These pooled investment vehicles allow you to invest in a diversified portfolio managed by professionals. They can focus on stocks, bonds, or a mix of both, catering to different risk levels and financial objectives.

Ready to learn more?

Investing involves making informed decisions about complex topics. A financial professional can help by:

  • Identifying your goals, timeline, and risk tolerance.
  • Creating an asset allocation strategy tailored to your needs.
  • Evaluating investments and monitoring your portfolio.

Although working with a financial professional doesn’t guarantee success, their expertise can help you navigate the investing landscape and build a strategy to achieve your goals. Get in touch with our Investments & Insurance Team to learn more about investment strategies, estate management, college savings, retirement planning, or any other financial goals you’re looking to achieve.

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CUSO Financial”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CUSO Financial: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CUSO Financial. Columbia Credit Union has contracted with CUSO Financial to make non-deposit investment products and services available to credit union members. Atria Wealth Solutions, Inc. (“Atria”) is a modern wealth management solutions company and is not a Registered Investment Advisor or broker-dealer. Investment products, services and advice are only provided through CUSO Financial, a subsidiary of Atria.