| In simple economies, there is little
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| | Is storing money safely, such as in a
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| distinction between savings and
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| | bank or money market account, for
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| investments.
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| | short-term needs such as upcoming
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| One saves by reducing present
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| | expenses or emergencies.
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| consumption, while he invests in the hope
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| | Typically, you earn a low, fixed rate of
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| of increasing future consumption.
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| | return and can withdraw your money
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| Therefore, a fisherman who spares a fish
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| | easily.
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| for the next catch reduces his present
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| | Investing:
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| consumption in the hope of increasing it
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| | Is taking a risk with a portion of your
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| in the future.
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| | savings such as by buying stocks or
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| Most of the people probably have savings
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| | bonds, in hopes of realizing higher
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| accounts with ATMs to access their
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| | long-term returns.
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| hard-earned cash and be able to store
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| | Unlike bank savings, stocks and bonds
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| away any extra cash in a place a little
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| | over the long term have returned enough
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| safer than a mattress. A few of you may
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| | to outpace inflation, but they also
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| even have some stocks or bonds.
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| | decline in value from time to time.
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| Let me explain why while a savings
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| | The rate of returns and risk for savings
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| account in the bank may seem like a safer
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| | are often lower than for other forms of
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| place than the mattress to store your
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| | investment.
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| money, in the long-term it is a losing
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| | Return is the income from an investment.
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| proposition!
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| | Risk is the uncertainty that you will
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| If you open a savings account at the
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| | receive an expected return and
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| bank, they will pay you interest on your
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| | preservation of capital.
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| savings. So you think that your savings
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| | Savings are also usually more liquid.
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| are guaranteed to grow and that makes you
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| | That is, you may quickly and easily
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| feel extremely good!
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| | convert your investment to cash.
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| But wait until you see what inflation
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| | The decision about which investment to
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| will do to your investment in the
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| | choose is influenced by factors such as
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| long-term!
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| | yield, risk, and liquidity.
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| The bank may pay you 5 percent interest a
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| | Investments may produce current income
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| year on your money, if inflation is at 4
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| | while you own the investment through the
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| percent though, your investment is only
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| | payment of interest, dividends or rent
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| growing at a mere 1 percent annually.
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| | payments.
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| Saving and investing are often used
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| | When you sell an investment for more than
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| interchangeably, but they are quite
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| | its purchase price, the profit is known
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| different!
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| | as a capital gain, also called growth or
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| Saving:
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| | capital appreciation.
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