Savings or Investing

genchan · #1 (**permalink**) 10-12-2005, 05:42 PM

Here is my problem. I would like to spend more time researching investments and finding ways to save money, but my current schedule doesn't allow me to do both. So which is a better use of my time? Should I concentrate on saving money and place it into an investment that doesn't take any time to manage or should I forget about saving and do more research on getting a better return on my investments?

34saving · #2 (**permalink**) 10-12-2005, 07:14 PM

I'd concentrate on saving first then investing. Saving is guarenteed . . .investing? Not so much. . . . Of course the law of diminishing returns always applies too. If you're spending hours to try to save a few more cents, then switch to investment strategies.

BAGAGT1 · #3 (**permalink**) 10-12-2005, 07:21 PM

I don't think it takes too much time to find ways to save. Saving ideas usually come to me, I don't really spend time thinking about ways to save money (plenty ideas can be easily found in this forum). So IF I had to choose one, I would choose researching your investments.

baselle · #4 (**permalink**) 10-12-2005, 09:39 PM

Saving money, then consistently sticking your savings into a basic low-fee vehicle, like a Vanguard or a Fidelity index fund.

You don't tell us the dollar amounts involved, but at low dollar amounts you should be able to save more money from your paycheck than the increases that you'll get from a growth investment. Even if, say, your investments are returning 12% annually (fantastic results these days), it means that it'll take six years to double your money (rule of 72). Unless we are talking about more than $10,000, you should be able to double your savings more quickly than that.

meaghanchan · #5 (**permalink**) 10-13-2005, 05:15 AM

I agree 100% with baselle, though would like to expand on it a bit:

Most individual investors who try to 'beat the market' fail. Most investors see a stock going up, they say, 'hey, it's going up like crazy! I'll get in now and it will go up more!' and then it falls- it was valued at more than it was worth. If you were to do some research, and you found out what mutual funds/individual stocks did really great this year, you'd find a lot of stuff in the energy and real estate sectors. Both have done really well this year. But here's the thing: They may go up. Or they may go down. Nothing can go up forever, and I would be very wary of investing in either right now. These are just examples-- it could be anything. In the late 90s it was tech stocks. If you went around chasing performance in the late 90s, and looking at mutual funds that had done really great, you would have had A LOT of money in tech stocks when the market crashed.

There is a certain amount of research about investing that I think is good. I really devoted time in September to learning about mutual funds, because I knew I was going to be investing in one before the end of the year. But keep in mind that a little knowledge can be dangerous; Trying to time the market often fails, and so does chasing performance. You might get better returns over the long term just putting your money in, like baselle suggested, a good low-fee index fund. (which, despite all my research, is the way I'll be going!)

Ultimately, I think there's a couple questions you should ask yourself to answer this question:

1) Do I have as much money and resources to put into this as a mutual fund manager who does this for a living 40+ hours a week? If not, why do I think I can make better picks then him?

2) Do I have _enough_ money that getting a better return is worth it?

Let's say you spent your time on coming up with great ways to save money. Let's say you came up with a way to save $10 a month. That's $120 a year. Great!

Now, let's say you spent your time instead on researching investments. Let's say you did good research, didn't fall into the pitfalls many investors fall into, and managed to beat the S&P index, consistently, by 1%. If your investment is $100,000, you'd be increasing your investments by an additional $1000 each year- much better than the $120 return you got through finding ways to save. But let's say you have $1000- you'd be increasing your investments only an additional $12.

Unless you have a really large amount of money, you're better off increasing your savings.

jmjj215 · #6 (**permalink**) 10-13-2005, 11:56 AM

This is one of my favorite articles on passive investing. Quite the interesting read! Some forum members disagree with the "market return" approach though - saying the times have changed.

sweeps · #7 (**permalink**) 10-13-2005, 12:07 PM

Quote:

Originally Posted by jmjj215

Some forum members disagree with the "market return" approach though - saying the times have changed.

Yup, I got slammed recently for recommending passive investing.

My feeling is that saving is something you can directly control. What happens to the markets is something you cannot control. I'd rather focus more energy on the prior. I just make sure I invest in lots of different things, contribute to them regularly, and let time go to work for me.

dealsaver · #8 (**permalink**) 10-13-2005, 02:29 PM

Quote:

Originally Posted by Sweepsplayer

Yup, I got slammed recently for recommending passive investing.

My feeling is that saving is something you can directly control. What happens to the markets is something you cannot control. I'd rather focus more energy on the prior. I just make sure I invest in lots of different things, contribute to them regularly, and let time go to work for me.

I agree. For most people the most important return on their investment is the actual return of their investment(ie. getting it back some day in the future). Diversification helps ensure you don't make a big mistake that shoots a hole in your portfolio.