Investing 101: Know your goals, options Published Feb. 19, 2009 By Staff Sgt. Danielle Johnson 305th Air Mobility Wing public affairs McGUIRE AIR FORCE BASE, N.J. -- Everyone knows saving money is a good thing, especially in an uncertain economy. But how can you put your money to better use? According to Suzanne Curren, a certified credit union financial counselor with Andrews Federal Credit Union, even though saving is always smart (and safe), the interest earned on savings account balances doesn't keep up with inflation. So even though the balance increases, that dollar amount won't have the spending power it had 10 years earlier. She recommends that you also invest money for a higher rate of return. "Saving and investing on a regular basis allows your money to work for you and paves the way toward reaching your goals," said Ms. Curren. Consider your financial needs and ability to save. Establish short-term (under one year), medium-term (one to three years), and long-term (three or more years) financial goals. Also consider your time frame: If you're in your 20s, you have more time for your money to grow and can afford to take a little risk; if you're close to retirement, you'll want to consider less-risky investments. Know how much of your paycheck you can save and make adjustments to increase that amount to reach your goals. You'll also need to consider your risk tolerance; are you comfortable with taking a lot of risk with the possibility of high returns or would you prefer more conservative investments? "When deciding where to invest your money, you'll need to take into account the characteristics of each investment vehicle," said Ms. Curren. "There are basically three types of investments: cash equivalents, stocks and bonds." Cash equivalents are low risk, but also produce a limited return; they include savings accounts, money market accounts and certificates. Stock shares represent a percentage of ownership in a corporation and have the greatest potential to make the most amount of money. Companies issue stock to get investment money to build or expand their business; investors purchase stock because of the potential for appreciation and, in some cases, dividends - a cash payout to stockholders from the company's earnings. Bonds are loans to a company or government that you make as the lender. Organizations and governments issue bonds when they want to raise funds and in exchange promise a specific interest, called the coupon. A fourth investment vehicle, Ms. Curren said, are mutual funds, which can be made up of any combination of stocks, bonds and cash equivalents. "Every investment vehicle carries a certain level of risk," Ms. Curren said. "This means that there is a possibility that you could lose all or some of your investment, or that your investment may not earn what you think it will." The best way to manage investment risk is to become familiar with asset allocation, dollar cost averaging and diversification. Research all investment options before determining a balance that works best for you and will best meet your goals. Internet resources such as www.militaryonesource.com and www.saveandinvest.org contain valuable information that can help you determine your financial goals and get started on your path to financial success. "Setting up an investment portfolio is not a one-time event," she said. "Your life changes quite dramatically over time and your investments should reflect your most current needs and objectives. Be sure to monitor your portfolio on a regular basis. Keep good records, track your progress and, above all, be patient. Building wealth through saving and investing takes time. Expect setbacks and keep learning - you'll be on the road to riches before you know it."