Saving and investing go hand in hand
- Published: Friday, Feb. 10, 2012
COLUMBIA, Mo. – 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 your goals, you should seriously consider investing, says a University of Missouri associate professor of personal financial planning.
Three things can help you 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, you 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 you 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 us to the importance of time. The longer you invest, the better you can balance risk versus 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 you’ll be able to achieve higher rates of return and reach financial goals.
For more investment information, see the MU Office for Financial Success’s “Investing 101” page at https://ofsmizzou.org/financial-planning/investing/.
Writer: Debbie Johnson