Stock and Bonds Now That

Stock and Bonds Now that we have covered the concepts of the present value of money and future value of money, how will your awareness impact your financial decision-making in the future? The concept of the future value of money reflects the fact that the assets in a savings bank are almost inevitably losing in value. The interest rate for savings accounts fails to keep pace with inflation, so it is essential to invest one's money in higher-yielding sources to truly maximize the interest-generating power of savings accounts.

In other words, simply putting one's money in the bank is no guarantee of safety, in fact, it is a guaranteed loss! However, for individuals afraid of risking too much of their savings in the stock market, safer options do exist. Preferred stock, for example, carries no voting rights but the owners of such stock are paid before the owners of common stock, even if a company fails.

Bonds, which essentially function as loans to companies or governments are likewise safer should an entity experience financial difficulty: usually lenders are able to recover some of their assets. Government bonds are considered even safer than corporate bonds in most instances because, in general, governments are less likely to become insolvent than corporations.

Regardless of one's appetite for risk, it is essential that some diversification of assets is used to prevent 'losing' money by saving money in a bank account alone, although noninsured investments should not be concentrated on one area of the economy, to protect against potential losses. Even in today's economic climate, investors should allocate some of their funds in safe, but higher-interest bearing sources.

These might include certificates of deposits or CDs, which can be allocated into different accounts so the CDs mature at different times, to free up more of the saver's money. These safer investments may also include government bonds of stable governments and corporations, as well as preferred stock for.