Saving and investing go hand in hand

Wednesday, June 20, 2012

Every family has its own unique financial goals. Those goals could be saving for retirement, putting money aside for a college education or buying a house.

Whatever a family's goals, investing should be seriously consider, says a University of Missouri associate professor of personal financial planning.

Three things can help an individual become a successful investor: discipline, diversification and time, says Robert Weagley, chair of the Department of Personal Financial Planning at MU.

Discipline means forgoing short-term gratification for long-term saving. In other words, rather than spending, set aside that unspent money.

"Savings, to me, is what you do by not consuming your money," Weagley said. "Then, once you've saved money, it's time to start thinking about making some investments."

Investing is not without risk, but with risk comes reward. Diversification is the best way to offset risk. Investing in just one company means an individual could lose a lot if anything goes wrong, Weagley said.

"Think of it like a horse race," he said. "We know one horse will win and one will lose. If we could bet money on every horse in the race -- diversification -- the horses will take turns winning, and over time we'll get solid returns."

This, of course, brings up the importance of time. The longer an individual invests, the better the risk can be balanced against the return.

"It's very important for young people to start saving their money when they're in their 20s," Weagley said. "If they wait until their 30s or 40s, it will be very difficult for them to reach the financial goals they set for themselves."

Weagley said removing emotions from investment decisions is also important. By controlling emotional response to temporary changes in the market, either up or down, over time an individual will be able to achieve higher rates of return and reach financial goals.

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