Investment 101 tells us to stay away from savings accounts:
low interest, low return and especially boring.
Savings accounts? Are you crazy? Boo, hiss. These days,
savings accounts are only used as joke fodder for late-night comedians. Take
the mom who wants to teach her kids the value of prudent financial management,
for example:
For
little Bobby’s eighth birthday, his mother takes him down to the local credit
union to open a savings account. Figuring that all the grownups in his life
would pour money into this new savings account to encourage him – without his
lifting a finger — Bobby reasons that the offer is hard to beat. So, off to the
credit union they go.
At his
mother’s prompting, Bobby explains to the banker that he came to open a savings
account. The banker gives a knowing glance to the mother and pushes the
application form across the desk to Bobby. “Well, sir, this is your account, so
you have to fill it out.”
Bobby
methodically makes his way through the form, but pauses when he comes to the
box that reads: “Name Of Your Former Bank.”
After a
minute, he grins as he writes … “Piggy.”
Ba-da-boom! [Cue the clash of cymbals.]
If you’re like millions, you might think that savings
accounts have no more use than old-fashioned, lame jokes.
Think again.
I used to stick my nose up at savings accounts too, until
about twenty years ago a friend told me he invested in nothing but an old-fashioned
savings account. He was a wise man of few words; so when he spoke, everyone
listened — including me. Until his death, he lived frugally — but comfortably —
on those savings.
My friend’s experience made me look at savings accounts with
different eyes. Granted, he did this in the days when they paid interest rates
with real numbers before the decimal point. That’s no longer the case, is it?
These days the return you get on savings accounts barely moves the needle on
the return scale. We often joke that banks use those accounts to challenge
their IT people to see how many zeroes they can get into an interest rate, like
0.000001%.
Nevertheless, I still believe savings accounts are a viable
part of a successful investment strategy. Why in the world would anybody think
that? Well, first of all, there are the old standby arguments you always read
when you do a search for something like “the advantages of savings accounts.”
The obvious advantages of savings accounts:
1. Liquidity - With most investments, there is a time delay
involved in getting access to your money. But sometimes you need quick access
to your funds.
2. Safety - Everyone knows that (in most cases) the Federal
Deposit Insurance Corporation (FDIC) guarantees up to $250,000 of your money in
a savings account. Now, I know there is a cadre of people out there who believe
the sky is about to cave in on us and that that guarantee is worthless; but for
the rest of us, that guarantee makes a savings account as safe as anything you
are going to get anywhere. And as Warren Buffet often remarks, “Rule #1 in
investing is: Don’t lose it. Rule #2 is: See Rule #1.” For safety, it is hard
to beat the savings account.
3. No hurdle to start - As Bobby’s story above illustrates,
getting started with a savings account is both quick and easy. No minimums, no
fuss, no conditions, no nothing — just “git ‘er done” and you’re in business.
The not-so-obvious advantages of savings accounts:
Now, as Tom Selleck used to say in “Magnum, P.I.,” “I know
what you’re thinking.” We’ve heard this a million times, and by now those
arguments insult our intelligence because they downplay the abysmal returns
quantitative easing is causing us to endure. You are just writing this to get
another blog out there, or who knows why. Wake us up when you have something
real to say. How do I know that? Because I used to think that … until just
under 20 years ago.
The hidden advantages of a savings account.
4. You don’t need to know anything - I often hear from
readers who explain why they put off investing or (worse) have no plan to
invest at all. Close to the top of their list of reasons is ignorance: They
don’t know what to do or how to invest. I didn’t either, so I started by simply
piling all our spare money into a savings account.
This is the age of the Internet and, if you want to learn,
there are many places where you can learn how to invest, for free or for money.
However, you don’t need to know anything to get started with a savings account.
You can always reinvest what you have deposited there somewhere else, but it is
almost impossible to get back what never got put in there in the first place.
5. You don’t need to take any risks - As pointed out above,
a savings account is probably the safest starting point for any long-term
investment strategy. It is the easiest thing in the world to move money out of
a savings account into another investment vehicle when the opportunity presents
itself. As an example, if the house next door becomes available and you want to
buy it as a rental property, where do you put your funds as you scrape up the
down payment? Your savings account would be a good start … if you were faithful
and consistent to keep building it.
6. You buy time to learn - Ignorance is one of the biggest
obstacles holding people back from being determined and consistent investors.
Ignorance usually leads to this kind of statement: “If I don’t know what to do,
I’m very afraid of losing my money.”
Well, if you start with a savings account, you buy yourself
enough time to learn all you can about investing, until you are comfortable
that you know what type of investing interests you, and then you can ease into
that at your own pace — with the capital you have been saving all along!
7. Positive reinforcement - Nothing succeeds like success,
they say. Instead of procrastinating out of fear and ignorance, when you start
with your humble savings account, you see progress after a few months. Sure,
it’s not a million dollars, but it is more than you started with.
Once we saw our savings account grow, it inspired us to see
if we could do even better. It’s hard to put a value on this positive
reinforcement, but for us it was invaluable. The biggest mistake people make is
not following through with their investment plan. The instant feedback you get on
your growing savings account can be a motivator to keep going, if that sort of
things has meaning to you.
8. Reality is on your side - Reality? What reality? This
reality: No matter what you invest in, for the first five to 10 years, the
lion’s share of your nest egg consists of your own contributions.
When you make the decision to get serious about investing,
you can take some comfort in the fact that you don’t lose a lot by taking a
year or two to learn all you can about investing while you simply stash cash in
an old-fashioned savings account. (In fact, you could think of that teeny,
little bit of interest you lose as your school fees, which are cheap at the
price, all things considered.)
But that doesn’t mean you should wait to open a savings account
if you don’t already have one …
… because the biggest key to investing success, as many have
pointed out, is simply to get started. And there is no easier and safer way to
get started than to open a humble savings account. You don’t need to restrict
your investing to savings accounts like my friend; but as a starting point to a
successful investing career, savings accounts are hard to beat.
COLLEGE
CHRONICLES – The University of California system may add only
a few hundred students this fall, President Janet Napolitano says. Los Angeles
Times: http://lat.ms/1JRWVJG
THE
ECONOMICS OF HEALTHCARE - As they cope with the federal health-care
overhaul, the two biggest U.S. health insurers by revenue, UnitedHealth and
Anthem, are seeking to buy smaller rivals in a merger scramble aimed at cutting
costs. And in an usual partnership that reflects the tough economics of the
prescription-drug business, CVS Health is paying $1.9 billion to buy and run
Target’s pharmacies and clinics. The 1,660 drugstores inside Target locations
will be rebranded CVS/pharmacy. The Obama administration, meanwhile, has been
making billions of dollars in payments to insurance companies under the health
law without being able to confirm just how much it owes each insurer, according
to an inspector general’s report to be released today.
POLITICS
101 - New Q poll of Florida, Ohio, Pennslyvania primaries:
Florida: Jeb Bush 20%, Marco Rubio 18%, Scott Walker 9%, Ben
Carson 7%, Mike Huckabee 6%, Rand Paul 5%.
Ohio: John Kasich 19%, Bush 9%, Walker 8%, Huckabee 7%, Paul
7%, Rubio 7%, Carson 6%, Ted Cruz 6%.
Pennsylvania (which is set for late April but considering
joining the other two on March 15, 2016): Rubio 12%, Paul 11%, Bush 10%, Carson
10%, Walker 9%, Rick Santorum 7%, Chris Christie 6%, Huckabee 6%, Cruz 5%.
Democrats: Hillary Clinton clears 50 percent in all three
states, with Bernie Sanders around 10 percent.
Days until the 2015 election: 134. Days until the 2016 election:
505.
SOCIAL
STUDIES - 200 YEARS AGO:
Napoleon met his Waterloo, defeated in battle in present-day Belgium on June
18, 1815.
--42 YEARS AGO:
the WashPost ran its first story on the Watergate break-in, in the Metro
section June 18, 1972: http://wapo.st/1RbrElg
BIRTHDAYS
THIS WEEK – Birthday wishes and thoughts this week to: Erin
Brockovich (55), Olympia Dukakis (84),
Beth Elmore ….famous Green Bay Packer
fan, John Elway (55), Pete Hamill (80), Toby Maguire (40), Carly Simon (70), Brian Wilson (73)
TEN
QUESTIONS - Rink Rats is starting a new by-monthly feature entitled
"Ten Questions". We ask people of interest to Rink Rats some
questions about their life.
This month Ten Questions to Michelle Graves. Michelle is a
friend of Rink Rats and has recently graduated with her M.B.A. degree. She, in
our opinion, represents what is the best about the Millennial Generation (1982
– 2004); the generation that now out numbers the “baby boom” generation and
whose responsibilities are growing daily in managing America and the world.
1). Michelle tell us about yourself; where did you grow up, go
to high school, college?
I grew up in La
Verne, went to San Dimas High School, and received my Bachelor's in degree in
Psychology from Texas Woman's University in Denton, TX. Before attending University of La Verne, I
went to Cal Lutheran University to pursue my Psy.D. degree, but left after
realizing counseling was not the job I saw myself performing every day for the
rest of my life. My youth is quite boring as my life revolved around gymnastics
and the 6 hours each day I spent at practice.
2). What was your major in undergraduate and graduate study, and
why did you select your majors?
Undergrad:
Psychology, Graduate: Business.
I studied psychology in undergrad because I felt a strong
tie to the subject and excelled in those classes. However, after actually
working as a counselor I realized it was far too emotionally draining. Having
parents who own and operate a small business, I felt business was always in my
blood and felt "at home" in my business classes at La Verne.
3). You were an athlete growing up, what sport? Are you still
participating in that sport?
Gymnastics, and
no I no longer participate. Not only is there no real professional career for
gymnasts, but I had 6 surgeries which prevents me from doing basic activities.
4). How has sport added to the quality of your life today? Or
not added?
The sport really
gave me so much, it is hard to put into words. I believe I am not afraid of
hard work or failure because of my sport. I also feel that it has given me the
ability to speak publicly, feel comfortable being judged, and excel in
competition.
5). What is your career today? How do you see your career
progressing?
I am currently
running the family business and working as a consultant for a small accounting
firm. In the future, I would like to continue my studies, earn a Ph.D. in
organizational psychology and work as a professor while consulting on the side.
6). How has education added to your life and career as of today?
My education is
the reason I am in the career I am in today. If it was not for the professors
at the University of La Verne, I would not be working as a consultant, nor
would I have the confidence to be a successful businesswoman.
7). What is your perfect summer vacation?
My perfect summer
vacation would be a two-week long trip to an all-inclusive resort in Bocas del
Toro, Panama with my boyfriend :)
8). Who is your favorite musician and why?
My favorite
musician is George Strait because he embodies all that is country music. He is
a real cowboy and stays true to his roots given all his fame and fortune.
9). What are you currently reading?
I am currently
reading James Patterson's 2nd Honeymoon, which is super exciting for me because
I stopped reading for pleasure while I was in school.
10). Define happiness.
Happiness is having
close relationships with friends and family and a career that allows you to be
both financially stable while maintaining a healthy personal life.
THE
SWAMI’S WEEK TOP PICKS –
Women’s World Cup: 1). Germany, 2). U.S.A., 3). Japan
Season
to date (59-24)
MARKET
WEEK – Comcast-owned Universal's "Jurassic World" and the
Disney-Pixar debut "Inside Out" grabbed the top two spots at the
weekend box office, with $102 million and $91 million in domestic ticket sales
respectively.
DRIVING
THE WEEK – Secretary of State John Kerry and Treasury
Secretary Jack Lew participate in the U.S.-China Strategic and Economic
Dialogue in Washington ... IOSCO Chairman Medcraft speaks at the National Press
Club today at 10 a.m. ... The Senate Banking Committee holds a briefing on its
flood insurance review Tuesday at 10 a.m. ... Labor Secretary Thomas Perez
speaks at a Brookings retirement event Tuesday at 1:40 p.m. ... FEMA officials
testify at a Senate Banking flood insurance hearing Wednesday at 10 a.m. ...
House Appropriations marks up a Labor Department spending bill Wednesday at
10:15 a.m. ... New York County District Attorney Cyrus Vance testifies at a
House Financial Services Committee terrorism financing hearing Wednesday at 2
p.m. ... House Financial Services holds a hearing on CFPB discrimination
allegations Thursday at 10 a.m. ... Senate Banking holds a hearing on the
impact of a Greek default Thursday at 1:30 p.m.
Next
week: Summer Travel Series, Gardening tips from West Chicago, Illinois
and the Jack Ass of the Month.
Until Next Monday, Adios.
Claremont, CA
June 22, 2015
#VI-3-265
CARTOON
OF THE WEEK – Glenn
Mc Coy
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