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.
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.
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%.
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 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.
Why is it important to invest regularly? ›
People who invest regularly are more likely to have a financial plan – and stick to it. Their investments are better diversified, so they stay on course even when markets turn choppy. That means they're also more likely to see better results from investing – and accumulate more wealth.
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 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.
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.
What is the most important factor in investing? ›
A long horizon and consistency are keys to healthy investment returns. I will start off by saying there's no magic bullet. The two things that separate successful investors from losers is 1) a long horizon and 2) consistency.
Why is investing early and often important? ›
It allows money to grow exponentially over time and can help savers and investors to turn small capital sums into large cash piles over many years. Referring to it as one of the greatest “miracles” known to man, Albert Einstein described compound interest as “the most powerful force in the universe”.
What is the importance of investing? ›
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 are the benefits of investing? ›
Read on for more information about the potential benefits of investing, and how they can improve your financial well-being.
- 1 – Grow Your Wealth. ...
- 2 – Provide Regular Income. ...
- 3 – Plan for Retirement. ...
- 4 – Diversify Your Portfolio. ...
- 5 – Combine Passion With Financial Growth. ...
- 6 – Market Performance and Growth Potential.
Key Takeaways
Understand risk, diversification, and asset allocation. Minimize investment costs. Learn classic strategies, be disciplined, and think like an owner or lender. Never invest in something you do not fully understand.
Why is it worth it to invest? ›
Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of compounding to accelerate gains. Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds.
Is investing an important skill? ›
Investing can help individuals become financially literate, understand the relationship between income, expenses, assets, and liabilities, and make informed financial decisions. Soft skills such as emotional control, self-discipline, and time management can be honed through investing.
Why are investing activities important? ›
Why Are Investing Activities Important? Investing activities are one of the most important line items reported on a business's cash flow statement. They can give you insights into how a business might grow in future and earn more revenue.
Why is it important to start investing as early as possible? ›
Because investments grow at an exponential rate, meaning it builds onto itself, investing earlier will leave you with a significant larger retirement sum than if you had chosen to wait. There are many ways to invest your money and make it work for you.
