The Carr Report: Saving and investing is a plan, not a product

by Damon Carr, For New Pittsburgh Courier

I’m often asked questions such as, “What’s a good stock to pick?” or, “How is the stock market doing?” These questions are generally followed up with statements such as, “I don’t invest because I know very little about stocks”or “I don’t invest because I’m afraid I will lose all of my hard-earned money.”

These are legitimate concerns. One should know however that America has the largest, richest economy in the world.

Although it’s true that any investment you make is subject to risk that involves a possible loss of the money invested, a balanced mix of investment products will help to offset potential losses. When you look at saving and investing from a product perspective such as stocks, bonds, mutual funds, money market accounts, saving accounts, CDs, exchange traded funds, options, real estate, commodities, etc., it can be overwhelming and confusing. Saving and investing is not as difficult as it seems. Time horizon defines if you’re saving or investing. More on that later.

There are essentially two basic choices to saving and investing. Investing, where you become a lender to someone, namely savings accounts, certificates of deposits, bonds, cash value life insurance and fixed annuities. Investing, where you become an owner of something, namely stocks, real estate, precious metals, farmland, oil and cryptocurrency, gas syndication, etc. Your concentration on saving and investing should be on your goals and objectives. Why am I saving or investing? The financial product you select will be used as a means to accomplish your goals. This will make your saving and investment experience easier to understand and more fulfilling. If you come across anyone touting a particular investment product as a good investment without understanding your goals and objectives, I advise you to run because they have their own best interest at heart, not yours.

Saving and investing is the process of sacrificing something today so that you can have more of something at a later time. For example, you deposit $200 per paycheck into a savings account to purchase a couch that costs $2,000. In this example you sacrificed money that could have been used for something else in your quest to save enough money to make a future purchase—a couch. The savings account in this example was used as a tool to reach your goal. The above illustration, as simple and as common as it may appear, is the foundation from which all saving and investment decisions should be made. Too often, we tend to make saving and investment decisions because that’s what someone told us to do or because we heard that someone else made a lot of money in the stock market. Conversely, many of us tend not to make saving or investment decisions because someone told us not to or because we heard that someone lost their shirt in the stock market.

Our decision to save or invest money in a particular vehicle should stem from our goals and objectives. We should ask ourselves questions such as: What is my objective? How much money do I need to accumulate to meet my objective? What is the time horizon? How much can I afford to save or invest per week/month/year? How much of a risk am I willing to take? How much do I anticipate earning on my savings and investment? Answering these questions will not only help you form a plan, it will ultimately help you select the best financial products (tools) you will use to accomplish your goal. Below are some of the primary reasons people save and/or invest money:

• Emergency—rainy days, unexpected events, unexpected expenses
• Contingency—future expenses that are due quarterly or annually such as insurance or taxes
• Large purchases—any item costing over $1,000
• Vacation—paid-for vacations are the best way to travel; otherwise the vacation follows you home in the name of bills
• Car—enough to cover the cost for a down payment and closing cost, oftentimes to purchase the car in cash
• Home—enough to cover the cost for a down payment and closing cost, sometimes to purchase the house in cash
• Children’s college education—it will be great if you start life without student loans
• Capital Sum to start a business—not everyone borrows to start a business
• Retirement—these years are supposed to be golden
• Wealth—some people plan to become millionaires

The greater the potential earnings or rate of return being offered, the greater the potential risk. Investing by lending is a more safe and conservative style of investing. Investing by owning is a more aggressive approach. The risk is greater when you invest by owning—so are the potential earnings. Investing in its truest and safest definition is a plan wherein you’re making a long-term commitment (five years or more). You have to be both willing and in a position to forgo using the invested money for a minimum of five years. This will allow your money to grow—more importantly, withstand the ups and downs of the stock market. You should only utilize stock mutual funds, EFT funds, index funds, and other ownership investments only when you are investing long-term. Whenever you are making short-term investments (under five years), consider investing by lending types of investments, such as money market accounts, savings accounts, CDs, and bonds. Money market and saving accounts are also known as cash-equivalent accounts because you can easily convert money into cash.

Are you saving or investing money if you’re saving for a car that you plan to purchase in the next three years? You’re saving money because the time horizon is less than five years. This means you’ll use a conservative liquid account such as a saving account, money market account or certificate of deposit.

Are you saving or investing money if you’re saving for retirement that’s 15 years away? You’re investing this money because it’s greater than 15 years away. As a result, you can use more aggressive financial products such as stock funds, EFT funds or index funds. Furthermore, because this money is earmarked for retirement, you can utilize tax advantage vehicles such as Individual Retirement Accounts or 401(k) plans.

It’s important to start your saving and investment strategy with the end goal in mind by breaking down and prioritizing your goals and objectives. As you begin to define your goals and objectives, you will begin to understand how to utilize the various savings and investment products and vehicles as a means to best benefit you and your family.

(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @

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