You’ve decided to open an account at a local bank or an online bank instead of a credit union. Or, maybe you’ve decided to buy a three-month certificate of deposit versus a twelve-month certificate of deposit. A bank paying the highest interest helps you decide and justify purchasing a certificate of deposit rather than opening a savings account at the local bank. Bottom line, this may be the only type of investing you’re familiar with. Feeling comfortable and saving with banks and credit unions may be as far as you want to go. When you save money, you’re an investor, like it or not.
An investor decides where to save money and how much risk they’re willing to take. A saving account at the bank or purchasing a certificate of deposit reflects your attitude about risk. You don’t want to lose money. So to be safe, you deposited your money in a bank’s saving account. For starters, this is an acceptable alternative. It’s not, however the only saving alternative to consider.
Personal finance involves many subjects none of which are taught in school. Saving money is just one component. Having money to save shows you know how to budget. Budgeting is also a part of personal finance. However, now that you’ve worked hard for your money, you want your money to work hard for you.
Saving your money in a bank worked well for a while. Now, your job decided to get rid of their pension plan and make you responsible for your retirement. The company’s 401(k) plan did not list a savings account or a certificate of deposit for you to invest in. The company’s 401(k) plan offered twenty options which included a stable value account, bonds, mutual funds, and maybe some stock. These investments were scary because you’ve never heard of them and because you’ve only saved money in the bank.
The unexpected introduction to different investment products and the requirement for you to select one or more products make you an investor, like it or not. Regardless of your background or education you are required to select from a limited list of mutual funds and invest in a product. Changing your financial literacy perspective can be overwhelming especially when salesmen use scare tactics to convince you to invest with them. Ask ten financial advisers about investment products and you’ll get 10 different answers depending on what they’re selling.
Financial information is very confusing to the uninitiated. The vocabulary is difficult, the products are complicated, and the professional advice isn’t always right. Personal finance is not as complicated as the salesmen want you to believe. Recent scams and Ponzi schemes have shown that investors must be careful and gain the knowledge to make their own investment decisions. You don’t need to pay for bad advice and get Madoffed.