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Investing Basics: Separating Savings from Returns

  • Realize that saving and investing are two different concepts.
    Saving involves not spending current income, while investing requires you to take those savings and do something with them to earn a return. Saving often becomes easier when it is separated from the choice of where to invest. Find ways to make saving as automatic as possible, perhaps through payroll deductions or monthly checks to an investment account. Then you can take your time to research and select specific investments.

  • Develop an asset allocation plan to guide your investing.
    One of the most critical investment decisions you'll make is how to allocate your portfolio among the major investment classes, such as stocks, bonds, and short-term investments. Part of your plan should include a review of your investments on at least an annual basis, making adjustments to keep your asset allocation percentages in line.

  • Don't let fears about risk prevent you from making investment decisions.
    All investments contain risk, so understand how risk affects different investments. Even seemingly safe investments, such as bank accounts, are subject to purchasing power risk, or the risk that your return won't outpace inflation.

  • Put time on your side.
    If you have ambitious financial goals that require significant sums to achieve, one of the best moves you can make is to start saving as soon as possible. With time on your side, even modest sums can grow to significant sums.

  • Chasing the highest returns is a difficult game to win.
    Much of the financial press is devoted to covering investments with the best performance for the last quarter, year, three years, etc. Many people then switch to these high performers, only to find that they purchased at a high for that investment. It often makes more sense to carefully consider investment alternatives, selecting those you would be comfortable owning for several years.

  • Realize that help is only a phone call away.
    The investment world has become very complex, with a vast assortment of investment vehicles now available. If you need help with your investment decisions, please contact a financial advisor.

Stock investment skills

Stock investment skills