Where to Land Your Savings?

We all work so hard to earn a living and at some point you need to start saving for the future, retirement, child education and a house near the beach.

The first step is of course to set aside some hard earned cash but the more difficult decision to make is where to invest. There are so many different opportunities for investors today and the decision is almost daunting.

First of all you have your bank at your disposal. They offer time deposits and various savings accounts for you to get a guaranteed return. The problem is of course that this return is often lower than what you would like to see. After all up to 5% per annum is a return that is guaranteed but won't make much in terms of profit and will not protect against inflation. Your upside is also capped so you may want to take a chance and find an opportunity where you can really make more.

If you are prepared to take a hit on a smaller portion of your savings then bonds and equities may be the instruments for you. Now by buying bonds you essentially lend money to governments, companies etc and earn interest. The risk is that of course the party you are lending to may default in which case some or all of your money may be lost.

Equities or shares are ownership rights of a stake in a company (a business) or another form of organization. Today you can buy a piece of any publicly traded company like Microsoft, Mastercard or Apple. The downside is that the share price rises and falls with the financial markets that do collapse, as we have seen with the current financial crisis. Bad management can also result in companies go bankrupt or suffer poor share performance.

The upside can of course be much more substantial. Equities tend to be riskier investments and of course it depends who the counterparty is. Investing in large companies or government securities is generally considered less risky than investing in emerging market small caps. Well, if you are considering investing some free cash here think about collective investment vehicles like mutual funds or exchange traded funds.

Collective investment vehicles help diversify risk and also costs while allowing you to benefit from professional investment management. After all you may not have time to monitor on a day-to-day basis the companies you have invested in and this way you will have a professional to do the job for you. They put together portfolio based on their strategy and investing in a portfolio can really help diversify risk which looking at international funds can help you benefit from the growth in the merging markets.

In addition note that collective investment vehicles can be used for many other asset classes other than equities and debt securities. They can be used to manage real estate investments, private equity, commodities (gold, silver etc) etc

Saving and investing requires experience and knowledge but as long as you delegate enough and follow good advice, you can really make a great start to saving for the future.