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Planning to Be Rich

Looking at risk vs. reward

In general, investments (stocks, bonds, mutual funds) earn a higher rate of return than savings accounts. However, there is a trade-off for that greater return, and that is the possibility that the value of your investments may not increase, and may actually decrease.

Here's an example of the risk-reward relationship. If you save $1 every day from the time you turn 18 until you are 65 years old, and your money earns 5% interest, you will have nearly $69,232 when you are 65. Since this investment has a relatively low rate of interest, it's probably pretty low risk.

If you save the same amount in a mutual fund that earns 10% interest, you'll have $397,398 when you turn 65. However, because this investment pays twice as much interest, it's likely more risky and volatile, and you could lose more money in this higher-risk investment.

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