Strategies for Making the Most of Your Savings and Investments for the Short and Long Term


Saving and investing: although the two terms seem interchangeable, they are very different, especially in recent years. It used to be a person could deposit money in a savings account and expect their money to grow slow, and steady over time. Since the financial crisis of the latter half of the last decade, interest rates have plummeted.

The term “money in the bank” has changed from a meaning a sure thing, to basically money without growth. People hoping to see their money grow for the future should shift their thinking from saving, to investing for the long term.

People saving money in the bank continue to see poor returns on their accounts in spite of recent interest rate increases. 

Economic experts are suggesting people should rethink their non-retirement savings and emergency fund strategies, rather than be content with abysmally low interest rates.

Past president of the Million Dollar Round Table, and CEO of Financial Solutions Midwest in Nashville, Illinois Brian Heckert urges people to be realistic as a first step in determining how, and when savings will be used. “Some clients are planning for the worst-case scenario of three things breaking at once, but that’s probably not going to happen,” he says.

People may have thousands of dollars laying virtually idle in a low-yield account because they want their money to be easily accessible, and safe. “They think having $10,000 to $15,000 sitting idle is OK,” Heckert says. Over time, these people could be missing out on thousands of dollars in interest, or gains available through alternative investment and savings options.

Instead of saving money in an all too familiar dust-gathering bank account, there are strategies that could keep money safe, and comparatively liquid.

It sounds pretty simple, but savers should look for a better rate, even if it means getting their cash out of the same bank their grandfathers used. There are a lot of banking options, including online banks, than can be notably good picks for savings accounts.

People can buy CDs from a bank as well as brokered CDs, which have been previously purchased and are being sold. Brokered CDs are closer to their maturity, meaning money earns more interest now and will be tied up for less time. A saver does not want to be stuck in a three or five year CD as interest rates are rising, essentially that money is locked away from higher earning potential.

Saving money in a life insurance policy is another way people are learning how to invest money.

Financial pros disagree among themselves about the wisdom of using life insurance as a form of investment. People buying life insurance or annuities should be aware of the overall cost as well as fully grasp the policy’s terms. That being said, a paid up additions rider on a whole life policy could earn 3 to 4 percent, giving the policy owner immediate access to the cash, if needed. A fixed-index annuity carrying a premium rider could yield 5 to 6 percent returns.

Paying off debt may not seem like it is investing money, but in the very least, it is saving money.

When people pay off their debt, they are of course spending money, but they are usually paying off high interest debt with their savings. It can make financial sense to use cash reserve to pay off debt, even though it does feel risky. The money that’s paid out every month on the loan can be used to either replenish a higher interest bearing savings account, or be considered for investing.

Short term bond funds are reasonably stable and low risk: both points are important to people looking to go beyond saving money, and learning how to invest.

Short term bond funds are a logically safe place to park some investment dollars, but they are not going to be big money makers. Currently a 10-year annualized return on even the best bond fund is only around 2 to 4 percent. Director at BKD Wealth Advisors in Oakbrook Terrace, Illinois Steven Martin suggests, “Accept the fact that the money is not going to grow a lot.”

Consider investing money in low risk investments such as mutual funds, or bank loan funds to get higher returns than saving money in a bank.

There are bank loan funds and mutual funds that permit investment in the loans extended to corporations and other borrowers. These “senior floating rate funds” are less volatile than some bonds, but they are not entirely without risk. Heckert says, “It avoids bond risk, but it does assume credit risk.” He also noted that during the recession, some of these funds experienced large declines.

Peer-to-peer lending may also be a viable investment for those looking for a more risky option. Managing partner with Harris Financial group in Chesterfield, Virginia Jamie Cox  suggests avoiding pouring all of one’s savings into this type of investment. He says, “[It’s] the same as investing in a low-rated high-yield bond.  If you want to earn a large spread, 5 percent or so, you can, if you can sustain the risk.”

For those looking toward the future and investing money for the long term, 401(k)s and IRAs are highly recommended by finance professionals.

Whenever possible, people should be contributing to an individual retirement account (IRA) or 401(k). Depending on whether a Roth account is used, IRA investments offer an immediate tax deduction, or tax free withdrawals in the future. Additionally, employer sponsored 401(k) funds could match employee contributions.

Index funds and ETFs offer low fees which make them a great option for investing money for the future.

Many people feel investing through a brokerage is the way to go. Index fund and exchange-traded fund (ETF) accounts do not need monitoring by the individual investor, but are passively managed through the investment firm. This keeps fee expenses on the accounts low, 0.5 percent or less.

Index funds keep in step with the overall market, but ETFs can fluctuate more. Both spread risk by containing varied securities, but investors should plan to thoroughly research what they are considering before investing a sizable amount of money into any fund.



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