Young and with long-term savings objectives? Saving accounts are NOT your best option.
You are young and dynamic, busy with building your career/business. Chances are that saving for retirment is not a top priority for you right now. From a rational point of view, it should be. Psychologically, you are probably more bent on how to finance some business venture. Or looking for profitable investments to build more cash and satisfy needs such as travelling, buying a hose, raising a family….
Savings accounts today hardly offer more than 2% interest rates, in stable and reliable economies. If your invested capital is small (which is often the case for young people), you will hardly feel the difference at the end of the year. You might be tempted to speed up things and resort to Apuestas de caballos en NY, that can give some quick satisfaction.
Better put this type of money games in the “entertainment” section, though. As a rule of thumb, when you put your money on something that implies risks, don’t do it with funds that you need for your everyday needs. Always use your surplus, when betting on something where you can loose. Investments sometimes do have a gambling component, but there are ways in which you can lower the risks involved and still reap the benefits. Let’s see how.
Your best ally in planning your savings/investments is asset allocation. What does it mean?
In plain words, you need an investment strategy, and this is exactly what asset allocation is. A plan to reach your financial goals by matching their time frame with an adequate risk tolerance. And distributing your money in different asset classes – basicall, fixed-income vs. equity – accordingly.
The money that will be needed in the short-term should be kept on low-risk, fixed-income assets. Think in terms of a 2 or 3-year time frame. In this case a saving account or similar form of fixed-return financial tool, like government bonds, is adequate. Liquidity needed for current expenses needs to stay on a current account, which does not offer much of a return, usually just enough to offset inflation.
Equity investments, like shares, are the ones that can offer some more substantial rewards. But they also carry more risk. This is why you would never invest on equity to reach a short-term financial goal. In simpler words, your block of shares could go up or down on the stock exchange in a short period of time in unpredictable ways. If you needed liquidity from that investment, you could find yourself in trouble. In the long run, the chances to obtain a balanced result are much better. Equity is a much better idea for long term goals like a retirement fund, when there are many years ahead to offset the risks of the markets.
Diversification is the other golden rule, that can be summed up as “don’t put all your eggs in one basket”. Small investors do not have the large capitals needed to build a diversified portfolio by themselves. The way to go is that of investment funds.
Today you can find several tools in the internet to help you design an asset allocation targeting your financial goals. “Invest” some time in research, before investing your money, and you will not regret.
