Monday, July 30, 2012

My Rules for Safe Saving

People often spurn low-risk savings in favor of the possibility of the higher returns that come with riskier investment options. Personally, I would have thought that many of these people would have learned their lessons over the last few years of the financial crisis and real estate market debacle.

I for one have never been a big fan of risky investments, preferring to stick instead to low-risk savings in which my money is safer and more secure. While the rewards might be a bit less in the short-term, over the long-run there are still plenty of rewards to be had if I stick to the following rules.

Don’t be Swayed by the Crowd
It can be easy when looking for places to put your hard-earned money, to be swayed by public opinion, and even the opinion of friends and family. A hot tip about an unknown stock from a co-worker. A home in foreclosure that’s too good to pass up. A new equity fund that just came on the market that everyone’s talking about.

Whatever it is, people often have a way of skewing certain investments to sound like they are a “can’t miss opportunity,” but this doesn’t necessarily mean that they are. We only have to look at the housing market collapse and financial crisis to see how seemingly “invincible,” yet still risky investments like real estate and companies “too big to fail” managed to crumble quickly.

Diversifying is Critical
Even when saving your money, diversification can be crucial. Diversifying can help get the most out of low-risk savings opportunities. Doing things like laddering certificates of deposit can help to spread money over a variety of return levels over time. And just because a savings option is low-risk, still doesn’t mean there isn’t some risk involved. Putting all your eggs in one basket -- even a steel reinforced basket -- can still burn you if that basket is somehow stolen or destroyed.

Be Happy with Lower Returns
It’s not always the higher-risk investment that burns an investor but the greed and short-sited view of the future that pushes him or her to make that investment in the first place. Personally, I’m fine with low returns. Over time, the steady low return on savings can be just as valuable -- if not more so -- than the fluctuating higher risk returns. I find that my ability to remain greed-free and satisfy myself with lower, albeit less exciting savings returns, tends to make my saving style safer and makes me feel more at ease.

Look for Control, Rather than High Returns
Low risk saving options typically offer more control. I like to have control over my money since no one is going to care about that money more than the one who actually earned it…me.

With control over my savings, I can move it where it needs to be to make me a safe, yet stable return; but at the same time, I can get to that money if I need it. Things like government savings bonds, certificates of deposit, and high-interest savings accounts might not look like much on paper, and may issue a penalty if dipped into sooner than their maturity date, but if I need the money for a purchase, emergency or investment, I can get to it rather easily.

Patience is a Virtue
Love it and leave it. That’s my motto when it comes to my savings. If I care about my money, I want it to be safe. And like a growing child, savings need time to mature and grow into their full potential. Therefore, I tend to put my money in secure, interest-earning savings accounts and investments where it can sit safely and grow for me with my having to do and worry very little.


The author is not a licensed financial professional. This article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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