How to Go From Saving to Investing

Just2shutter / Shutterstock
Just2shutter / Shutterstock

Heather Pelant examines how many people were raised to value financial discipline, but not necessarily financial growth, and shares tips for how to change your mindset from a saver to an investor.

Think back to your earliest memories about money. It probably started with a piggybank that you occasionally shook to hear the rattle of the coins you stashed away. Perhaps your parents taught you to save a portion of your allowance for that special something. Or maybe you’re old enough to remember opening up your own bank account and watching your savings grow.

Now ask yourself, when did you first learn about investing? The memory may be vague, if it exists at all.

For many, “save” is the anchor verb because that is what you learned to do. You saved for expensive purchases, for college, for retirement, for a rainy day.

But only 6 percent of investors learned about investing from their parents, according to the BlackRock 2015 Global Investor Pulse Survey. For example, just one in 10 Americans were taught the importance of contributing the maximum to a 401(k) and starting the path to retirement preparation. This lack of education may be why 69 percent of Americans prefer not to think of themselves as investors.

How Americans Feel About Saving and Investing

Yet in today’s world, saving alone  may not be enough to reach long-term financial goals. It’s possible to change your financial mindset, but first you need to climb inside your head to understand your views of money.

How Do You Think About Money?

During my years talking to people, I’ve seen three main financial types:

  1. Savers
  2. Savers and investors
  3. Those who do neither

There are many reasons for the “neither” category. And while some people have limited resources to make ends meet, others just need to learn more about finances and feel comfortable about investing.

I’ve learned people usually save cash because they are either nervous about the markets, awash in inertia or saving for a specific goal. Most Americans (61 percent) see safety and security in savings. Meanwhile, 37 percent describe investing as risky, and 72 percent do not see it as a way to achieve their long-term financial goals. Therefore, they keep nearly two-thirds of their money (65 percent) in cash-based accounts.

Now, of course I’m not saying people shouldn’t save, especially for emergencies or unplanned expenses. But the rules have changed. Today, your savings have likely been earning next to nothing, and will probably continue to do so for a while. As a result, many people will likely fall short of reaching their long-term goals if they don’t invest.

People who are savers and investors think about both together as part of a financial plan, making sure they have enough cash on hand for short-term needs and investing the rest depending on their risk tolerance. As a result, this type of person tends to be more successful in reaching financial goals.

Graduating From Saver to Investor

You can potentially increase your chances of financial growth by overcoming your historical biases about money. Following these steps can help you become a successful saver and investor:

Think about the similarities of saving and investing

People who describe saving money as investing in financial markets have 22 percent lower cash allocations. And the sooner you start investing, the more your money could potentially grow.

Compare the risk of investment losses to the risk of outliving your savings

We have tools to help you estimate your retirement expenses and the potential retirement income from your current savings.

Make a plan and stick to it

Apply the same disciplined approach you have for savings toward investing by establishing a financial plan. People with formal plans are more confident that their wealth will last throughout their retirement (78 percent), as well as meet current financial obligations (85 percent).

Get Financial Advice

You don’t need to already have wealth to seek financial advice from a trusted professional. Newer online advisory services, aka “robo-advisors,” can be a cost-effective way to start establishing a balanced portfolio. And it’s okay to ask knowledgeable relatives or friends their opinions.

I’ve seen it time and again: The more we all become educated and experience the positive rewards investing can bring, the more we will establish new and positive memories about money.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of June 2015 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

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