Southland News

April is Financial Literacy Month, so we're going to take you through the basics of five financial principles:

1. Earning
2. Saving and investing
3. Protecting
4. Spending
5. Borrowing

Follow along each week to learn some key information about each topic!

Principle 2: Saving and investing

Should you save or invest? There are actually several key differences between saving and investing, and the right mix between the two depends on your financial goals.

So what's the difference?

Saving is typically for a short-term goal of five years or less, while investing is used for long-term goals like a child's education or retirement. 

Other key differences:

• Risk or safety level
• Liquidity of funds
• Term length
• Return rate

Saving

Saving is the lower-risk, lower-return option. Since these accounts are opened through a bank or credit union, they are insured by U.S. Government agencies, so your money is safe from losses. There are many ways to save, such as a certificate of deposit (CD), money market account or traditional savings accounts. 

Let's break down these saving methods:

• A CD offers higher dividends than a money market or traditional savings account, but there are minimum deposit requirements and set terms. A set term is a length of time in which you cannot access the funds within the account without paying a penalty for early withdrawal. 
• A Money Market account offers higher dividends than a traditional savings account, and has flexible access to your funds. The more funds you have in your Money Market account, the higher the dividend rate. 
• A High Yield Savings account through Southland Credit Union has a minimum deposit requirement of $10,000 but earns dividends more comparable to a CD while funds remain fluid.
• A traditional primary savings account has the lowest dividend rate but there are typically no minimum deposit requirements and your funds remain fluid. 

In general, it's recommended that you begin building your savings and paying off high-interest debt before you start your investing journey. If there is an emergency or unexpected cost, you need to have money you can easily access, and that's hard to do if all your money is wrapped up in investment accounts. 

If you're interested in a savings account listed above, be sure to apply through Southland Credit Union here.  

Investing

There are so many types of investments that you can participate in, but all investments are tied to how the market is performing. If the market is performing well then you have opportunities to earn higher dividends, but if the market takes a hit then your investment accounts will also. 

There is higher risk associated with investment vehicles, but the rewards are also higher. You would typically have a mix of investment vehicles that you are contributing to. Some types of investments include the following:

• Retirement Accounts
• Stocks
• Bonds
• Mutual Funds
• Exchange-Traded Funds (ETFs)
• Index Funds
• Options

The investment vehicle that you are probably the most familiar with are retirement accounts. We talked about them a little bit under Principle 1: Earning, since 401(k) contributions are a type of retirement fund that gets withdrawn from your paycheck if you choose to enroll. 

Investing has more moving pieces involved than a simple savings account. If you are interested in investing but don't know where to start, you can schedule a consultation with a Southland Credit Union Wealth Advisor here.

What mix is right for you?

Now that you know the difference between saving and investing, it's time to delve in and figure out what mix of the two is best for you by determining what your financial goals are and the timeline for those goals. 

Ultimately, having a well-rounded approach will prepare you for a secure financial future.