Saving money is important, but investing those savings properly is just as important. Investing your savings well lets you get the most from the money you have available without putting your hard-earned money at risk. Learning to save and invest your money wisely will help you build a solid portfolio and an emergency fund that can get you through hard times.
Consider how much you need to accumulate in your savings account. If you are building an emergency fund, you will need to save a minimum of three to six months worth of living expenses. Saving that much allows you to absorb the shock of a job loss or other financial problem without liquidating more volatile assets like stocks and bonds.
Shop around for the best rate on a money market account to stash your cash and create your emergency fund. After that emergency fund is in place you can focus on expanding your investments to other types of investments, like stocks, bonds and commodities.
Contact several low cost mutual fund companies and request prospectuses for their stock index funds. Index funds are a good way to get started with investing your savings, since their expenses are low and they often outperform more expensive managed mutual funds. Review the expenses associated with each index fund, as well as their performance. Since these funds track the performance of indexes like the Standard & Poor's 500, their performance should closely track that index.
Request prospectuses for bond mutual funds as well and compare the expenses carefully. When investing in bonds it is important to track the direction of interest rates, since rising interest rates will reduce the value of existing bonds. If rates are at historic lows, an increase in interest rates will reduce the net asset value of the bond fund, even as the return on the fund goes up.
Consider investing a small portion of your savings in commodities like gold and silver. These precious metals can be a good hedge against future inflation, since they tend to rise when investors fear inflation is on the horizon.
- Jupiterimages/Photos.com/Getty Images