By Lynesha McElveen
Traditional/Non-traditional Savings & Investment Strategies: So You Think You’re Savvy?
There are all kinds of investments out there on the market. There are the ones many have heard of like mutual funds, stocks, and Individual Retirement Accounts (IRAs) or the ones many have not like REIT, Tax Liens, or Quit Claim Deeds. There is always the presumption of “safe” verses “risky” investments. Then there’s all of the terminology, IRA, REIT, IPO, ROI. What does all of this mean? Here is a short, simple way to learn about different investing, investment options, and what may be right for you.
- The Rule of 72s. Take 72 and divide by the interest rate you are receiving on any investment or saving. This will determine how long it takes your money to double. 72/4%=18, 72/6%=12, 72/12%=6
Therefore:
$1000 with 4% interest becomes $2000 in 18 years
$1000 with 6% interest becomes $2000 in 12 years.
$1000 with 12% interest becomes $2000 in 6 years.
The higher the interest the better, because $2000 becomes $4000, $4000 becomes $8000, $8000 becomes $16000, and $16,000 becomes $32,000 and this process continues on.
- Answer the question, “Why is it important to save and invest money?” What am I looking to do in the future? Retire, travel, buy a house, car, attend college, start a family.
- Learn basic savings and investment terms.
FDIC-Federal Deposit Insurance Corporation-Insurance for your money in banks in case of a stock market crash. Each account per bank is limited to $250,000
NCUA-National Credit Union Association-An association of insured Credit Unions
ROI- Return On Investment-The amount of interest you expect to receive on your investment
IRA- Individual Retirement Account-An account that allows you to save pre/post taxable income for retirement
REIT-Real Estate Investment Trust-A retirement account that allows you to invest in real estate or other property.
IPO-Initial Public Offering-When stock is first offered to a select, small group before going public
- Know the difference between savings accounts and investment accounts and have both. Understand most savings accounts will give minimal interest rates, currently averaging around 1-2% but the money can be federally insured while investments can offer unlimited interest with no insurance or guarantees.
- Establish an Emergency Fund. This fund will be used to pay living expenses in case of job loss. The fund should be 8-12 months of monthly expenses. For example, if your monthly bills are $4000/month, your emergency fund should be $32,000-$48,000.
- What is the difference between “safe” and “risky investments?” Learn about all of the following: Savings Accounts, US Savings Bonds, Treasury Bonds, Trusts, Stocks, Tax Lien Certificates, Real Estate Short Sales, Quit Claim Deeds and Notes, and Foreign Trade Markets.
- Basic investment websites that require no broker include:
ING Direct at: www.sharebuilder.com
E-Trade at: www.etrade.com
Buy and Hold at: www.buyandhold.com
- Invest in yourself. Take a course on investments, read books, and attend lectures and seminars to ensure you understand how to invest and make the best choices for yourself.
