Finding the best place to save for your future isn’t an easy task when you look at how many different investment and savings options there are out there. Where you should save really depends on what you want to save for. Here’s our guide to finding the best place to save for your future.

 

First things first…

I strongly suggest you check out the Investment 101 section of The Art of a Plan for help in determining if now is the right time for you to save and invest before reading through a place to save right here.

In Investment 101 I talk about some common places people save for their emergency funds, short-term and medium-term savings for large purchases (3-10 years until you spend your money) and for retirement as well.

Investment 101 can also help you determine where to start saving by laying out some simple ways to know if you have enough saved for a rainy day, to make a large purchase, or where to look first when deciding where to save for retirement.

It’s definitely worth reviewing where you’re at along the road of saving by learning our formula, because if you don’t have a firm understanding of when you’ll need to take your money out, you could make a mistake and invest your money in the wrong place. Investment 101 is designed to help you avoid doing that.

Secondly…

It’s important to understand your risk tolerance. I can’t tell you how many people I’ve run into that think they’re investing at a lower level of risk than they actually are. It’s important to find out exactly where you belong on the risk spectrum and also what different levels of risk are associated with the different investment options you have.
Next, be sure to Join The Art of a Plan to get your free SmARTer Money Toolkit™ to help you start planning right now.

Our Investment Risk Guide is an easy to use tool that will help you determine exactly what level of risk you should be taking with your investments. It will tell you right where you fit on the risk spectrum and give you a good idea of how aggressive you can be with your investing.

Once you have a good idea of your time horizon for saving, when you may need to take some of that money out, and how much risk you should be taking, it will make finding a place to save that fits you much easier.

The point is, this is not rocket science. Figuring out the best place to save is as simple as figuring out when you’ll need to spend the money and how much risk you’re willing to take.

 

There are several different types of investors, which one are you?

Learning a little bit about the different type of investors there are out there may help you decide exactly where you fall on that spectrum

After you read up on some common places to save for your investment style, scroll down or just tell us where you’re at in life right now for some tips on places to save for people in your same situation

Conservative Investors: The conservative investor it is an investor who is adverse to risk and who’s looking to preserve their capital. Conservative investors fall into a couple different categories;

No Risk Allowed- “I refuse to lose” conservative investors are looking to avoid stock market fluctuations at all costs.

A no risk allowed conservative investor is not interested in market investing, but rather, looks towards savings vehicles that offer fixed and guaranteed interest rates like savings accounts or CDs.

The idea of losing even a penny of their hard-earned money makes this type of investor’s skin crawl so a no risk allowed conservative investor will seek to protect their principal at all costs and are not persuaded to invest by the possibility of market gains, they just want to keep what they have.

Common places for no risk allowed conservative investors to save for the future:

  • Savings Accounts
  • High Yield Checking Accounts
  • Certificates of Deposit
  • Fixed or Indexed Annuities
  • Guaranteed or Indexed Cash Value Life Insurance Products
  • Money Market Deposit Accounts at Banks or Credit Unions

Some-risk-allowed Conservative Investors: “I want to keep my money safe but don’t think the bank is the best place for me to invest.” These conservative investors are not in the habit of taking high levels of risk with their money but they are not satisfied with potentially low yield fixed rate accounts like bank checking or savings accounts.

A conservative investor that is willing to take a small amount of risk has the opportunity to keep their risk level at a minimum but to also potentially capitalize on conservative gains in the stock or bond market. Conservative investors who will allow some risk in their portfolios understand that they can’t afford to take the risks with their investments that they did 20 or 30 years ago but they’re not ready to step out of the risk game altogether.

Conservative investors are not ready to hang those gloves up just yet when it comes to risk  but understand that they generally shouldn’t place more than 20% of their investments at risk in growth assets. Some-risk-allowed conservative investors look to preserve their capital just like no risk allowed conservative investors, but they do it with a slight risk edge.

Common places for Some Risk Allowed Conservative Investors to save for the future:

  • Money Market Mutual Funds
  • Indexed Annuities
  • Indexed Cash Value Life Insurance Products
  • Conservative Investment Oriented High-Quality Bonds, Bond Mutual Funds or ETF’s (not guaranteed)
  • Treasury Bills or Treasury Notes (backed by the the US government)

Conservative Growth Investors: “I want a high degree of safety with a little bit of growth.” The conservative growth investor is an investor who wants to minimize risk in their portfolio but is also aiming for a slightly higher degree of risk than a traditional conservative investor. A conservative growth investor could potentially have a need for income from their investments now.

I recommend that a conservative investor has no more than 40% of their portfolio invested in growth-oriented assets in order to keep their risk at an acceptable level. The remainder of your money should be invested in assets with less risk (mentioned above) for the purpose of preserving the majority of your capital.

Conservative growth investors are willing to accept a lower rate of return than more aggressive investors.

Common places for Conservative Growth Investors to save for the future:

  • Indexed Annuities
  • Indexed Cash Value Life Insurance Products
  • Conservative Growth Oriented High-Quality Bonds, Bond Mutual Funds, Equity Mutual Funds or ETF’s
  • Treasury Bills or Treasury Notes

Although there isn’t a large difference in the types of vehicles I would recommend for conservative growth investors compared to their conservative counterparts, there is a notable difference in the level of risk I recommend for conservative growth investors. This is especially true when looking at bonds, bond funds, equity mutual funds or ETF’s.

Balanced Investors: “I’m looking for a balance in my investments between higher and lower levels of risk.” A balanced investor sees a benefit in assets that can grow their portfolio and also in assets that are made to protect their portfolio from losses as well. The balanced strategy definitely contains risk, so if you’re looking to spend your money within the next five years and you invest with a balanced approach, take caution.

My recommendation is to have no more than 40% to 60% of your portfolio in growth oriented assets if you are a balanced investor. The remainder of your investments should be placed in assets with a lower degree of risk in order to balance out the level of risk in your portfolio.

A balanced investor understands that in order to keep up pace with inflation over the long-term they will potentially need to take some risk in their portfolio.

Instead of leaning more towards the aggressive side or more towards the conservative side, though, balanced investors seek to find a middle ground in order to get some growth if the market allows, but also provide some protection and safety to some of their assets if the market were to underperform.

Common places for balanced investors to save for the future:

  • Indexed annuities
  • Variable annuities
  • Variable cash value life insurance policies like variable life or variable universal life
  • Indexed Cash Value Life Insurance Products
  • Balanced mutual funds and ETF’s
  • Balanced actively managed investment portfolios

A common portfolio allocation for balanced investors is a 50% blend of stocks and a 50% blend of bonds, just make sure you know what type of bonds you’re buying before you assume that they are lower risk. There are many types of bonds available and the differences between them can be a little tricky to understand.

Moderate Growth Investors: “I’m mostly looking for growth, but a little bit of safety is always good.” A moderate growth investor is definitely looking for returns but understands it’s important to have at least a small amount of their portfolio in less risky instruments in case the market becomes volatile.

Because of the high degree of risk involved in a moderate growth portfolio, it may be wise to look at using this type of allocation for your money if you have at least 5 to 10 years before you plan on taking your money out.

Because growth is the objective of a moderate growth portfolio, I feel that those who use the strategy are okay to invest up to 80% of their investments in growth-oriented instruments, but there is also a slight low-risk element to a moderate growth portfolio as well. Make sure to have at least 20% of your portfolio assets invested in conservative instruments with less risk in order to properly balance out your moderate growth portfolio.

Common places for moderate growth investors to save for the future:

  • Variable Annuities
  • Variable cash value life insurance policies like variable life or variable universal life
  • Growth mutual funds and ETF’s
  • Growth oriented actively managed investment portfolios
  • High yield bonds
  • Stock from smaller companies (Small Cap) that show above average growth
  • Socks, bonds, mutual funds, and ETF’s centered around Emerging markets

A blend of 80% stocks and 20% bonds is a common allocation for a moderate growth portfolio.

Growth Investors: “I’m not out to preserve my money, I’m out to grow it.” When you’re not afraid of striking out you can swing for the fences. Well, not exactly, but a growth investor is only concerned with long-term growth. Short-term corrections in the market, no matter how severe, don’t rattle the growth investor because they’re not concerned about what happens in the short-term. Growth investors are usually quite a ways off from retirement and in the process of actively saving and growing their nest egg.

A growth investor knows that over time what goes down must come up and they’re willing to wait out any low points in the market with a long-term view in the hopes that when they need to take their money out in the distant future they’ve participated in enough market gains to significantly outpace inflation.

The growth strategy is not a short-term strategy. I recommend that you shouldn’t look at growth investing unless you have at least 10 to 15 years before you plan on taking your money out. This way you have a potentially higher likelihood of being able to ride out any market losses or volatility that may take place in your portfolio over the long term.

Common places for growth investors to save for the future:

  • Aggressive Growth mutual funds and ETF’s
  • Aggressive Growth oriented actively managed investment portfolios
  • High yield bonds
  • Stock from smaller companies (Small Cap) that show above average growth
  • Socks, bonds, mutual funds, and ETF’s centered around Emerging markets

As you get closer to needing to take your money out I recommend dialing your level of risk back through moderate growth, balanced, conservative growth, and conservative allocations depending on your age.

Important! The growth strategy does not have a low-risk element, growth investment portfolios routinely contain between 0% to 10% cash or conservative risk investments. A growth portfolio can carry a significantly higher likelihood of risk than its less aggressive counterparts, be sure you know your risk tolerance!

 

Now that I know what type of investor I am, where should I save?

When you have a better idea of what type of investor you are and what level of risk you should be taking when saving for your future, you’ve covered a huge step in this process by defining exactly where you’re at.

Not only is it important to know what type of an investor you are, it’s also important to make sure that you’re saving in the right places to meet your present and future goals as well.

Depending on where you’re at in life, if you have extra money to save, you could have a lot of options as far as places to invest for the future.

Here are some recommendations of some common places people save depending on what life events they have going on and what they’re planning for…

Don’t be afraid to ask for help: if even the basics overwhelm you, you’re not alone. There are plenty of qualified financial advisors and planners who are available to help discuss different investment and planning options with you. If you’re having trouble deciding exactly what type of investments you should be making or where you should keep your money it definitely can’t hurt to bounce those ideas off of a qualified professional who has experience in working with people in your situation.

Tell us where you’re at in life and we’ll give you some tips to find the best place to save

Out of college & working

Working and growing a family

The empty-nester stage

The retirement-living stage

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