by Teresa Kuhn, JD, RFC, CSA
President, Living Wealthy Financial
Most of us understand the idea that saving and investing are two completely different, yet complementary, mechanisms for achieving a solid financial future. However, given the enormous amount of painfully misleading information doled out by financial entertainer-types and journalists; advice that does not take into account the distinct functions that both investing and saving serve, it might be a good idea to review a few of the main differences between these two concepts.
Investing differs from saving in four essential ways that you can remember with the acronym RAIN.
R= Return. While the potential return on investments can be high, so is the risk. Most savings vehicles offer less return on investment in exchange for not having to risk your principal.
A=Access (or Availability) Investments are generally not liquid. This means that getting your money out in the event of an emergency can involve loss of gains in the form of penalties. Viable savings vehicles, on the other hand, provide liquidity, use, and control of your money.
I =Inflation. Good investments offer some hope of overcoming the deleterious effects of inflation on your wealth. Depending on the savings method chosen, many savings plans offer some protection against inflation, though that is not their primary function.
N=Negligible risk. Great savings plans mitigate or eliminate risk and provide peace of mind, which is something the majority of investment opportunities cannot promise.
Certainly this is a somewhat condensed discussion of these two ideas. My point is that you need BOTH in your overall strategy and you need to know the different approaches to take at various times in your financial life.
The ability to draw a clear distinction between saving and investing will assist you in critically evaluating the arguments against specially designed whole life insurance. Much of what has written against the concepts presented by Bank on Yourself centers around the criticism of BOY as an "investment strategy," rather than as a tool for cash management.
Most of you who know me realize that I have NOTHING against legitimate investing. In fact, I do it myself and encourage my clients to do the same. The key phrase here is "legitimate." You see, Wall Street has conjured and concocted a lot of suspect, even downright risky schemes for taking your money. They slap some pretty ribbon on a load of toxic products, call them investments, and use marketing dollars to make them seem legitimate or even sexy.
Having a Bank on Yourself plan firmly in place as your "cash hub," allows you to safely build and manage your money so you can take advantage of true investment opportunities when you come across them.
If you don't have a plan in place yet, or you have questions you need to answer, please call our office today at 1-800-382-0830.
