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.
Should I invest with Wells Fargo Advisors? ›
Wells Fargo Advisors is a good business for investors and those seeking financial advice. It helps that the company is an affiliate of the well-established Wells Fargo Bank — it's easier for people to trust a name they already know. Clients who already bank with Wells Fargo can save on Wells Fargo Advisors services.
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 is investment important in the economy? ›
Capital investment allows for research and development, a first step to taking new products and services to the market. Additional or improved capital goods increase labor productivity by making companies more efficient. Newer equipment or factories lead to more products being produced at a faster rate.
Are financial advisors worth it for investing? ›
A report by mutual-fund company Vanguard found that advisors can potentially add 3% or more to a client's net investment returns by picking cost-effective investments, behavioral coaching and more. But individual financial advice from a trained expert isn't something to purchase lightly.
Is my money safe with Wells Fargo Advisors? ›
Wells Fargo, along with thousands of other financial institutions, is FDIC-insured. FDIC insurance limits cap at $250,000. The FDIC insures certificates of deposit and money market accounts, along with traditional checking and savings accounts.
Are Wells Fargo advisor fees high? ›
Wells Fargo Advisors' cons
Higher than average fees: With fees generally ranging between 2% and 2.50% for its investment management programs, The firm's fees tend to be higher than the industry average rates, which generally fall between 0.50% to 1.25% of assets under management.
What are the three main reasons for investing? ›
Why Consider Investing?
- Make Money on Your Money. You might not have a hundred million dollars to invest, but that doesn't mean your money can't share in the same opportunities available to others. ...
- Achieve Self-Determination and Independence. ...
- Leave a Legacy to Your Heirs. ...
- Support Causes Important to You.
Good for long-term goals.
Investing can help you grow money over the long term, making it a strong option for funding expensive future goals, like retirement.
What is the overall purpose of investing? ›
The act of investing has the goal of generating income and increasing value over time. An investment can refer to any mechanism used for generating future income. This includes the purchase of bonds, stocks, or real estate property, among other examples.
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 investment important to business? ›
A sound investment strategy directly impacts a business's financial health. It leads to better financial statements, which in turn attract investors. Investors are more likely to put their money into a business that shows prudent financial management and promising growth prospects.
What are the benefits of investing in a bank? ›
In order to do that the investment banks may often help companies to issue their IPOs or Initial Public Offerings. Investing through a bank offers convenience, security, professional advice, access to a variety of investment options, and potentially higher returns.
Is it worth it to pay 1% to a financial advisor? ›
But, if you're already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they've helped you accomplish. For example, if they've consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain.
Is 2% fee high for a financial advisor? ›
Most of my research has shown people saying about 1% is normal. Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.
Do millionaires use financial advisors? ›
Of high-net-worth individuals, 70 percent work with a financial advisor. You can compare that to just 37 percent in the general population.
Can Wells Fargo Advisors be trusted? ›
Wells Fargo Advisors is not a trusted broker because it is not regulated by a financial authority with strict standards. We recommend you open an account only with brokers that are overseen by a top-tier and stringent regulator.
Can you get money from Wells Fargo Advisors? ›
Only you can add or withdraw funds from your account, or request Wells Fargo Advisors to do so on your behalf. The one exception is the annual advisory fee of 0.35%, which is divided into a quarterly amount and subtracted from the cash portion of your account.
What is the difference between Wells Fargo bank and Wells Fargo Advisors? ›
Wells Fargo Bank, N.A. provides investment management services as part of its trust and fiduciary services, deposit products, lending products and other bank products. Wells Fargo Advisors provides investment advisory and brokerage services.
Is Wells Fargo brokerage account good? ›
WellsTrade offers some convenient features for existing Wells Fargo customers, but for the average trader, this brokerage account delivers a rather basic investing experience. You'll get the industry standard of commission-free stock and ETF trades, and access to about 1,850 no-transaction-fee mutual funds.
