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Saving & Investing

Where to Save and How to Invest
Every savings goal you set will have a different time frame and purpose. These considerations will impact how you invest that money. As you set each savings goal, identify the following:

  • Your goal — the specific item you are saving for
  • A dollar amount
  • What you can afford to periodically save toward this goal
  • When you will spend it and how — as a lump sum with regular, small disbursements as needed, or to be touched only in an emergency
  • How much investment risk you are willing to take

Knowing all of this will help you identify what savings vehicle(s) to use and what types of investments to include — in other words, your investment strategy.

Your investment time horizon and risk tolerance will have the greatest impact on how you invest your savings.

Your investment time horizon is the length of time you have before you plan to spend the money you have saved. Generally, the longer your money remains invested, the more investment risk you can theoretically afford. More risk has historically translated into more return.

Your risk tolerance is how much risk you are willing to take with your savings. Risk refers to the potential for loss in the value of your investments. Some people are not comfortable watching the value of their investments go up and down with the markets. They have a lower risk tolerance. Others may be able to handle volatility better, focusing more on long-term results and not reacting to short-term fluctuations in the market. Regardless of your risk tolerance, a successful investment strategy should give you the maximum return for your investment comfort level.

You have many of choices when it comes to investing your savings. What's most critical is that you know where and when to invest it, and that its level of liquidity suits your needs.

Preparing for Tomorrow -- Protecting Your Estate: Your Will  Short-term Savings Goals