I’ve been thinking about the word ‘investment’ lately. 20 years ago, when I was first married, my husband and I went to a financial planner because we DIDN’T have much money and we wanted to be wise stewards of what little we had. We got started putting money in a savings account, then added bond and mutual funds, and a little while later started IRAs so we’d have something saved away for retirement… pretty boring stuff for newlyweds, but right up the alley of my practical financial bent.
We were told it was important to have diversified investments, and since we were young we should put money into investments that would give us a higher rate of return. That just plain old savings accounts wouldn’t keep up with the cost of living, so along with a savings account for emergencies we needed something that could make more money for retirement.
I’m the tightwad in the family, and wanted to make sure our money was in real investments that actually made money, and not just gambling. I was given complicated charts, graphs, and boring text that didn’t make any sense. Basically we were told “Hey, the market goes up and down, but in the long run it’s always on the way up. Trust us.”
Fast forward to 2009.
Friends had their investments wiped out. One guy lost everything – nearly $300,000 he’d carefully set aside for retirement. Another lost 2/3 of the money he’d set aside for his kids’ college education. A lot of people lost not only their interest income, but their principal as well.
I got to thinking about how those ‘sensible’ stock/bond/mutual funds from 20 years ago had changed. Now, I think I understand what the financial markets actually do: I give my hard earned money to a bank or other ‘professional investor’. They then take my hard earned money and give me a ‘token’ in return. They decide if and when that token will go up or down in value. They also decide that each year I must pay a fee for them to ‘manage’ my token. And on top of that, I get taxed on any interest that my token happens to make that year (even if the next year the token goes down again – meaning my token never really gets a chance to grow much at all). Then if my token is invested in certain IRAs, I also get taxed when/if I retire and start taking the money out. Oh, and if for some reason I get desperate and need to take my own money out earlier than retirement? You guessed it – I have to pay up to 10% of the remaining money back to them in penalty fees.
I began to notice that the accounts I was feeding each month didn’t seem to be growing at all, and then I started losing the principal that I had to start with. It then hit me on the head. “Investing should mean MAKING money, not losing it!”
So what, in my totally amateur opinion, are possible ‘real investment’ options now? (I am not giving financial, medical, or legal advice here, so don’t sue me…I’m just stating my opinion). CD’s. Even though the interest rate is low right now, at least it’s not like the stocks, bonds, mutual funds that you pay real money and get a greed-based-‘potential’-big business company ‘token’ in return. A CD actually accrues interest. You don’t lose your principal. You aren’t charged fees if you take it out at it’s agreed upon time (you can buy a 1 year, 2 year, 5 year etc. CD). So if you have some money in a good old fashioned savings account earning even a tiny amount of interest…and ‘retirement’ money in CDs making real money interest, that sounds like about the best bet…as long as it’s at a credit union. Credit unions are owned by the people who bank there, so there’s no CEO making millions of dollars – the credit union profits go back to you, the member, in better interest rates, better service etc.
So, my boring two bits on investments are this: live within your means. Pay off debt. Put your money in a community credit union not a big greedy bank. Put your money in investments that give a guaranteed rate of return with no management fees, penalty fees etc. It may not be glamourous, and you won’t get rich quick. But you won’t lose your principal and the money will be there when you need it…plus compounding interest will still be at work. And like the old story of the tortoise and the hare, sometimes it really is slow and steady that wins the race. It’s also important to read the fine print concerning all investments and to only put money you can ‘afford to lose’ in market-based endeavors. Can you afford to lose your retirement or college savings? Something to think about.
If you want more information about what a credit union is, click here http://www.creditunion.coop/what_is_a_cu.html
P.S. One the the best gifts you can give a new baby? A long term CD. Again, maybe not glamourous, but how many teethers and bibs does the little guy really need anyway?
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