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As saving rates are increasing in the US, many people are pondering what to do with their discretionary income. Something to consider is that as the government prints money thus increasing the fiscal deficit the dollar weakens. What you do with your money depends on the following factors: your age, how long you have till retirement, your debt; at that point you can decide whether you want low, moderate or high risk investments if you want to invest at all.
Let’s face it most of us are not millionaires but we can take steps towards becoming wealthy with the right planning and time. Is it best to put your cash in a CD, Checking Account, Stock Market (equities), Bonds, Treasuries, under your pillow, pay off debt, Real Estate etc.?
Even economists don’t have the answer to where is the best place to invest but here are some points to consider when making your decision. If you put $50,000 under your mattress in 1999 that cash would be worth $35,200 in 2009 due to the inflation rate increasing by 29.6% in 10 years. However, if you put $50,000 in a ten year CD with a 3.85 APY %, in 10 years you will have earned $22,966.72 in interest. In total you will have $72, 966.72 plus the inflation rate gives you $51,076.56.
This example is not meant to promote CDs it is an example of how much you can make even putting your money in a safe haven investment such as a CD. It is best not to lock money in a CD for ten years with the same rate. CD rates
can increase and if you’re money is locked in a CD you won’t have the opportunity to get the higher rate. Three to six month CDs are more reasonable because after the maturity of the CD you a can use that money plus the interest and invest it somewhere else or get a better rate on a CD.
If you are looking for higher returns you may want to consider investing in the stock market. However, the stock market is very volatile and risky so if you don’t have over ten years to retirement or the stomach to ride the ups and downs of the market you may want to avoid the stock market. A financial planner can assist you in creating a portfolio that is created to meet your financial needs. The professional planner can crunch numbers for you and provide the risk level that you will face and the possible or definite returns you will receive on your investment(s).
As some of us have witnessed, the vast majority of markets experience crashes and booms so there is no safe investment with high returns.
The Real Estate market and the stock market crashed in 2008, many older people lost years of savings and do not have the time to replenish the savings. Therefore, it is best to diversify your discretionary income and start investing early so you have time to build your nest egg. This is a lesson that we should all learn from and that is-to allocate your income/cash amongst many different investments such as quality stocks, high paying dividend stocks, bonds, real estate and CDs. You should always try to have about three month’s worth of cash in the bank in case of an emergency.
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