Practicing balanced financial management in your personal life is never easy. For instance, should you have one savings account or multiple savings accounts? If you have one, the money tends to multiply faster — but other needs tend to go unmet. If you have several, each one for a different big ticket purchase, it’s frustrating watching how slowly each account starts to grow.
Things can get even more bewildering if you’re thinking about planning for retirement. Some people choose to save for retirement, setting aside 10% of their salary, while others choose to invest in promising ideas like mining Bitcoins with Genesis Mining. What is the best way to go, and as far as investing goes, what are some of the more innovative things to invest in? Let’s take a closer look at savings, cryptocurrency, and a few other interesting ideas:
Should You Save?
Yes, but you also have to reckon that there is no reliable rule-of-thumb on how much you should set aside from your salary. While 10% of your salary is usually cited as a realistic perspective, there are too many variables to say whether this is always true. It might work if you start in your 20s, in which case the miracle of compound interest will work in your favor. However, what if you’re starting later, don’t always hold down a steady job, or run into some emergency expenses? A better way to approach savings is to use a T. Rowe Price’s Retirement Income Calculator to be able to make some fairly reasonable assumptions based on your current life situation. When it comes to savings vehicles consider savings accounts, money market funds, and certificate of deposits (CDs).
Should You Invest?
Absolutely! While savings are a good idea, you also need your money to make money. Inflation and unexpected life crises have a way of eating into your savings. You don’t want to rely on your savings alone in your old age.
Here are some answers to frequently asked questions about investments.
- What should I invest in?
Look into long-term investing vehicles like stocks, bonds, and mutual funds. Also, look into various retirement plans like an Individual retirement account (IRA), a Roth IRA, a 401(k), a 403(b), a Keogh, and a Simplified Employee Pension (SEP) plan.
- Is it better to diversify or not diversify?
Not all financial gurus believe in the mantra of diversification. Some of the most prominent figures in finance warn against it. Billionaire investor Warren Buffett, for example, thinks that it’s much better to study one or two industries, get to know them in amazing depth, and then leverage that knowledge to profit lucratively from them. He believes that this is a better approach than knowing a little about a number of industries, diluting your portfolio across many asset classes, and then hoping that the gains from some will offset the losses of others.
However, the argument for diversification, which is the old story of not putting all your eggs in one basket, also offers an equally convincing argument. Nothing is too big to fail, and no amount of knowledge can protect you from the unexpected. As the collapse of Lehmann Brothers proves—nothing is certain in the world of finance. If you remember, this was the largest bankruptcy filing in U.S. history. Who would have imagined that a company with over $600 billion in assets would file for Chapter 11 bankruptcy protection. Yet that’s what Lehman Brothers did on September 15, 2008.
In short, we have a state of equipollence: both ideas are valid and you’ll ultimately have to make your own decision. Broadly speaking, however, unless you’re planning on devoting the time for considerable study to become an industry expert, then a diversified portfolio will work for you. Buffett’s argument is based on a caveat–you must have expert knowledge.
- What are some less well-known but promising investments worth researching?
Two investments that appear to be increasing in value over time are cryptocurrency and gold.
- Cryptocurrency. This is a digital currency. It’s independent of a central bank, and secured through encryption techniques that are used to create units of a currency and to verify the transference of funds. Bitcoin is the largest and most popular coin, but others include Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash, Ripple (XRP), and Monero (XMR). Cryptocurrency is steadily increasing in value.
- Gold. Although the price of gold is affected by the value of financial instruments like stocks and bonds, the price is only volatile in the short term. Over the long haul, it has consistently maintained its value.