Before Investing: Start with Savings

Tina Haapala |

By Gary Silverman, CFP®

In this column, I’ve been talking quite a bit about investing fundamentals. In the coming weeks, I’ll discuss ways you can do this yourself, without hiring anybody. But first, we can’t ignore something fundamental…


It is my experience that many people spend hours researching stocks to find a path to riches or pour over commentaries to cull out the best mutual fund to own for the next six months. But somewhere in all that they forget about just simply saving money.

Trust me when I say that it is much better to spend time figuring out how to put more money aside and have a mediocre investment portfolio than it is to keep doing what you are doing savings-wise and have an above-average investment return. Certainly this doesn’t mean that investment selection and management aren’t important…after all, I even wrote a book about it. However, investment returns are based on a simple formula: Money multiplied by Return multiplied by Time.

You have very little control over time. What control you do have is to start saving now instead of later and putting off your planned retirement date.

You have a bit more control over returns. But once you figure out such things and the percentage of your investments that should be in growth vs. income vs. cash you are at best changing return by a percent or two.

Where you have the greatest control is in putting money aside. That’s because every day you are given choices to spend money now or save it for later. And you have the choice to save in advance for a known future expense or to wait until you need to buy and use loans or credit cards.

Sure, this is easier for some than for others, and there are times in our lives when we truly have no choice. But the family who can’t save anything is rare in this country.

So, before you start reading next week’s column, take some time from your schedule and plan on how you can build up a contingency fund (aka emergency fund or rainy day fund). If you’ve got that already then work on how you can save up for the next car, repairs on the house, and any other spending items that are in the future.

Not enough money left at the end of the month to make this work? Then look at where your money has gone this year and seriously ask yourself if there isn’t something you can spend less on without it harming your health or your future.

Then I’ll see you next week.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing