Simple Way to Save
When looking to invest your hard-earned money it is easy to get overwhelmed by the large variety of complicated sounding options that are available. Certificates of Deposit, Mutual Funds, Bonds, Stocks, Annuities, Residential and Commercial Real Estate are just a sampling of the types of investments that you can pick from. But which one is best for your particular need? Of course, the answer is always “it depends”.
A simple way to help you decide which investment type is best for you is to divide your needs into three categories: Money you need soon (within 1 year), money you need in the mid-future (1 year to 5 years) and money you need in the far-future (5 years or more).
Money you need soon
This class of savings includes funds set aside for an emergency, where you can get access to them right away. This is also where you would save for something you want to buy within a year, like a TV or computer. Your best choice is to open a savings account. You aren’t going to get much in the way of interest but it will be safe and easily accessible. For ways to get the best rates on savings accounts check out my article titled “Best Interest Rates on Savings Accounts”.
Money you need in the mid-future (1 year to 5 years)
Examples of mid-future savings include saving for a car or a down payment on a home. Your best choice here is to invest in a certificate of deposit at your local bank or a municipal bond. These are conservative choices but they both do a good job of protecting your principle and ensuring you get your interest. If you are willing to take more risk in return for the possibility of higher returns you can invest in a mutual fund that linked to a stock market index like the S&P500. Just be ready for the ups and downs of the stock market.
Money you need in the far-future (5 years and beyond)
Here is where you invest to meet your long-term needs for things like retirement and saving for a child’s college education. If your goal is retirement then you should first investigate whether your employer has a 401k plan available and whether they match some part of your investment. Try to max out your 401k before looking for other investment products. Also, within your 401k, invest in Target Dated Mutual Funds to have an investment expert decide how to best diversify your money. You simply select a fund that is designed for the year you plan to retire and then sit back and not worry about it. If you don’t have a 401k program available to you then open an IRA account with your bank and invest in a Target Dated Mutual Fund.
If your long-term goal is to build a nest egg to pay for the college education of a child, then consider opening a 529 account with your local bank. This account allows you to grow your money tax-deferred until it is withdrawn. Most 529 plans allow you to select from many investment options but to keep it simple, and “automatic”, it is easier to select an age-based option where a financial expert manages your 529 investment based on the age of the child and the expected time frame that the child will be needing the money for college.
If you would like to learn more about investing there are many sites on the Internet with great content for you to educate yourself with. Happy investing!