Cash, Stock or
now you’ve gone through your budget and have decided that you have all
the things you need -- for the time being. Now, it’s time to
begin saving and investing for the “high ticket items” you will need
in the near and distant future. Determining whether you save or
invest your extra money depends on how much you need your money to work
for you and over what period of time. In other words, you need to
determine how you can reach your goals with the least amount of risk using
cash, bonds, stocks or some combination of all.
you keep your cash under the mattress, in a shoe box, under your bra strap
or in a passbook savings account, you do not risk a loss in value over the
short term. Cash should be in everyone’s portfolio for gifts, new
investment opportunities, emergencies, charitable contributions and to
help you feel financially secure. The problem with keeping too much
cash for too long is that the value of your dollars will lose value over
the long term due to increasing prices. (Have you checked the price of gas
the simplest of terms, a bond is a long-term debt investment. In
this case debt is good, because you make an investment and someone else
owes you. A bond can be issued by a local government, the federal
government or a corporation. When you purchase a bond, the issuer is
obligated to pay you back in a certain period of years, and pay you
interest at regular intervals or when your original investment is
returned. In a strong economy, bonds tend not to pay high interest
(currently between 6 and 8 percent, though rates vary), but may be high
enough for you. (Interest rates and economic conditions will be
discussed in subsequent articles).
you want to be an owner of a company that is not yours, you can buy stocks
if the company issues stocks to the public. A common stock holder
has voting privileges and is entitled to profits if the company pays out
earnings to its shareholders. Unlike cash, you may lose short-term
and long-term value, depending on the company’s performance.
Unlike bonds, the company is not obligated to return to you the amount you
invested (the principal). Yet, unlike cash and bonds, your
investment may have the potential to appreciate in value over the short
and long term. If at any given time you feel uncomfortable
with the loss in value of your investment, stocks are not for you.
Of course, you can learn to feel comfortable with momentary losses in
value. There may be a pay-off if you can come to grips with
do you decide whether to keep your cash (save), or put it in bonds, stocks
or both (invest)? Answer this question: If you keep your cash cash,
and continue to add your extra dollars to it, will you be able to fund the
purchase of a residence, commercial property, a college education,
retirement, or something else you want in the time frame you’ve set for
yourself? If the answer is yes, then you can keep your cash cash.
If the answer is no, it’s time to consider investing in bonds, stocks,
or some combination.
© 2000, Marabella Books