By Team Tomorrow
Published August 9, 2021
Is that .01% interest that you’re accruing in your savings account not “wowing” you? If you’re looking to buy a home, consider making money via savings bonds and stocks earnings instead.
In this post, we will cover:
You probably best remember savings bonds as that weird gift Grandpa gave you on your fifth birthday. You couldn’t play with it, wear it, or eat it, so back then it was useless to you.
However, when it doubled in value by your 25th bday, you were thrilled to cash it in.
A savings bond is a loan to the government that’s issued by the US Treasury. It’s a long term investment that’s going to accumulate money — much more money than your run-of-the-mill savings account.
There are two different kinds of savings bonds: Series EE and Series I
Stocks represent equity ownership in a company and produces income via dividends and capital gains. Stocks allow everyday people to invest in some of the world’s most successful companies. In exchange, companies can use these investments to do things like raise money to fund growth and create new products.
You can make money via stocks whenever a stock price increases, and if/when the stock pays dividends.
When a stock price increases, it becomes worth more. Let’s say you buy a stock worth $10, and the price jumps to $12. If you sell it at $12, you’ve made a profit of $2 per share before taxes.
Dividends are a share of profits you get as a part owner of a company when you purchase its stock. Not all stocks pay dividends, and they’re not guaranteed. However, they’re nice to have when they show up. Companies typically pay dividends on a quarterly basis, depending on the company’s revenue.
While stocks are more volatile than savings bonds, they’re considered a great investment. The average annual stock earnings return is 10% (or 7% – 8% when adjusted for inflation).
However, these earnings are not a guarantee. Many companies go bankrupt and lose money over time. Meanwhile, other companies frequently make way more than a 10% return.
Here’s a story about three rich grandpas. Each grandpa invests $10,000 into their grandchild’s future (because they’re rich, and they can):
Here’s what each investment will look like at the end of 20 years:
It’s important to note the savings account and Series EE Bonds are guaranteed income, and that Grandpa #3 could’ve lost his shorts in the stock market. However, even if Grandpa #3’s rate of return was 5% — half of the annual average — the ending amount would still be $26,532.98. That number doesn’t include dividends.
Let’s shorten the timeline to three years, since saving to buy a house rarely takes you 20. Since short-term bonds are difficult to calculate, we’ll compare what $10,000 turns into over five years in your savings account vs the stock market:
In conclusion, if you want your money to make more money so that you can buy a home faster, invest in bonds and stocks.
And if you want to protect your wealth, visit Tomorrow today.
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