- About saving and investing
- Cash investments (savings)
- Debt investments (bonds)
- Equity investments (stocks)
- Additional resources
About saving and investing
After you calculate your income and subtract your projected expenses, the money that is left is available to save or invest. Before you put the money into any savings or investments, though, re-evaluate your financial plan. That means reviewing savings goals and your debt payment plans, and adjusting them based on changes to financial situation. If you've re-evaluated your plan and find that you still have money left over, consider investing. There are 3 different categories of investments:
- Cash investments (savings): Investments that guarantee you get your money back along with interest. Cash investments are the safest type of investment, but offer the lowest interest.
- Debt investments (bonds): Involve loaning money to the government or a company, which then issues you a bond and promises to pay you back with interest. Bonds are riskier than cash investments but do typically provide higher interest rates.
- Equity investments (stocks): Involve purchasing a share of ownership in a company. The value of a stock is tied to the success of the company, and fluctuates based on numerous factors. Stocks have the highest potential return among investments types, but are the riskiest form of investment.
If you are just beginning to save, experts typically recommend that the first thing you save for is an emergency fund. You will want your emergency fund to have enough savings in it to cover three to six months of your expenses. You can use the Smart About Money calculator or the CashCourse emergency savings worksheet to determine how much money you need to save in case of emergencies.
1. Cash investments (savings)
Cash investments involve putting your money into an account that is protected by the federal government, meaning that you have no risk of losing the money. There are several types of accounts for saving, each with varying levels of interest and liquidity. Liquidity refers to how easy it is for you to get back your invested money when you need it.
Types of cash investments
- Bank/credit union savings account: Bank or credit union savings accounts allow you to earn interest on your income at a low (but guaranteed) rate.
- Money market account: Money market accounts are offered at most banks and credit unions. These accounts pay a higher interest rate than savings accounts. However, they often contain restrictions or fees for things such as withdrawals or going below the minimum balance.
- U.S. Treasury Bills (T-bills): Treasury bills can be purchased online, and they pay you a fixed interest rate that is set at the time of purchase. They are available in terms of 4, 13, 26, or 52 weeks.
- Certificates of Deposit (CDs): CDs are accounts with a time limit restriction on your money. For this reason, they are sometimes referred to as "time deposits."
| Type | Interest rates | Liquidity | Things to Remember | ||
| Bank/credit union savings account | Interest accrues at a low rate, but the rate is guaranteed. | The most liquid of all types of cash investments. | Money in this type of account is accessible any time. | ||
| Money market account | Typically higher than savings accounts. | High liquidity, but lower than a savings account due to the withdrawal restrictions. | Often contain restrictions or fees for things such as withdrawals or going below the minimum balance; make sure understand all fees and restrictions first. | ||
| U.S. Treasury Bills (T-bills) | Typically lower than CDs, but the penalties for selling early are less severe. | More liquid than CDs, but less liquid than savings and money market accounts. | Interest made on these bills is exempt from state and local taxes. | ||
| Certificates of deposit (CDs) | Typically the highest interest rates of all types of cash investments. | Once money is in a CD, you cannot remove the money until the time expires unless you pay a substantial penalty. | Typically offered in terms of three month, six month, one year, three year, and five year options. The longer the term, the greater the interest rate. | ||
2. Debt investments (bonds)
Debt investments are essentially loans to corporations or the government. They typically take the form of bonds or annuities.
Types of debt investments
- Bonds: The government and corporations issue bonds in order to fund their actions. When you purchase a bond, you are loaning money to the issuer. Much like CDs, each bond has a pre-defined length of time. Once you reach the end of the bonds term, you are repaid the amount you loaned, along with interest. Bonds are a complicated investment tool, and it is recommended that you do more research on bonds before investing.
- Annuities: Annuities are contracts between you and an insurance company. After purchasing an annuity, the money is paid back to you in either a lump sum payment or several payments made over time. They are most commonly used to help people manage income relating to retirement. Find out more about annuities to see if this investment option is right for you.
For more information on bonds, watch this Investing Basics video from Ameritrade
3. Equity investments (stocks)
Equity investments involve investing money to receive partial ownership in a company or fund. They are the riskiest type of investment, but they have the potential for the greatest return. They are also commonly used for long-term investments. The most common types of equity investments are stocks and mutual funds.
Types of equity investments
- Stocks: Stocks are often referred to as “equities” because they involve purchasing ownership in a company. There are a variety of different types of stocks, and each one may pay the shareholder in different ways. With stocks, there is no guarantee you will get a return on your investment. In order to minimize the risk as much as possible, it is important that you research the financial situation of the company before investing. If you have not invested in stocks before, it is recommended you learn more and consult a financial planner or stockbroker before investing.
- Mutual funds: Mutual funds are companies that collect money from multiple investors, pool the money together, and invest the money in a combination of stocks, bonds, and short-term debt. This combination of investments is known as a portfolio. Since mutual funds diversify the portfolio with several different investment types, they carry less risk than investing in stocks alone. Find out more information before investing.
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Exchange Traded Funds (ETFs): ETFs are a type of fund which give owenship of assets, like stocks, bonds, index funds, oil, or gold. The assets are divided into shares which are available for purchase. While ETFs appear similar to mutual funds, they have several key differences. ETFs trade like a common stock, which means the price fluctuates each day. They are also passively managed, unlike mutual funds which are actively managed. This benefits the consumer by creating higher liquidity and significantly lower fees compared to mutual funds.
For more information on stocks, watch this Investing Basics video from Ameritrade
For more information on mutual funds, watch this Investing Basics video from Ameritrade
For more information on EFTs, watch this Investing Basics video from Ameritrade
Additional resources
Voluntary retirement plans
All faculty and staff, regardless of benefit eligibility, are able to participate in a UM System 403(b) or 457(b) Voluntary Retirement Plan. We encourage you to invest today so you can achieve the retirement you imagine.
If you’re an employee with the Retirement, Disability and Death Benefit Plan (RDD), your retirement plan consists of a defined benefit, also called a pension. A pension will help support you during retirement, but you may want to consider incorporating a Voluntary Retirement Plan (VRP) as part of your retirement saving strategy. A VRP can help supplement your pension and ensure you achieve the retirement you imagine. Learn more on our retirement plans page.
- CD Glossary
- Bond Glossary
- Annuities Glossary
- Stock Glossary
- Mutual Fund Glossary
- Estimate your retirement benefits – The University of Missouri Retirement Calculator is an online tool that helps faculty and staff estimate pension benefits under the university’s Retirement, Disability, and Death (RDD) Benefit Plan.
- Free one-on-one retirement counseling – Only for University employees enrolled in a 401(a), 403(b), or 457(b) retirement plan.
- Investing for your future – A free online course on investing. Sponsored by Rutgers Cooperative Extension, the S.S. Department of Agriculture, and the Financial Security for All community of eXtension.
- Beginners guide to investing – This guide will cover the basics of many investments and how to purchase them.
- Understanding your Risk Tolerance – Take this quiz to determine your risk tolerance and receive investment recommendations based on your risk level.
- Getting Started with Saving and Investing – Free coursework for beginner investors to help you start saving and investing.
- Stock Market game – This game introduces beginners to investing by allowing you to practice in a simulated market environment.
Reviewed 2019-08-23
