Remon Talks

Many people put their savings in a savings account. Savings accounts usually pay anywhere from 4% to 6% interest yearly. When you deduct the inflation, which is usally around 3% ( 2.8% to 3.4% mostly ), your savings grow only 1% to 3% a year.

If you still keep your savings cash at home, then quit reading and go to the bank now to put it in a savings account because your money will be worth less and less every year. If you’re putting your money in a savings account then read on!

There are many ways to make your money work for you. A savings account is one of them, I especially like the beauty of compound interest (interest over interest). However, since my goal is financial freedom I don’t put all my savings in a savings account, but only 25% to 30% of my savings. I use this savings account simply to safe money for when I’m old.

I put 60%-70% of my savings in mutual funds, I love mutual funds! My funds grow on average 1.5% to 5% per month depending on which fund we’re talking about. I split the fund investment in several pieces and invest in low risk funds up to high risk funds. The higher the risk, the higher the rewards, but I may loose some money with the high risk funds as well. Overall, when looking at the funds per year or 6 months all have grown.

Anyone can invest in mutual funds, you don’t need a big investment to start with. Don’t randomly pick funds though, think about it first. For example, one of my lowrisk funds is an energy fund (oil, electricity etc.). I don’t see oil or electricity prices dropping anytime soon and it had a morningstar rating of 3 so I started investing in it. In the last six months my investment grew 18.6%, nice!

I’ve always done well with funds with a morningstar rating of 3 or more. Some funds I personally wouldn’t invest in at this moment are internet funds (we’re in a bubble again) or USA real estate funds. Some other things I invest in with mutual funds are the asian tigers, asia without the 4 tigers, european real estate and a high dividend stock and obligations funds.

Every year I check my portfolio and sell and buy some to keep things balanced. This is necessary because of the different growth rates of the funds. I don’t want to end up with a portfolio containing 80% high risk funds for example.

I put the remaining money of my savings in a different savings account. I use this account for big purchases like a home renovation or for other investments. This is also the account that keeps a balance of at least 12 months worth of income, just in case I lose everything.

Conclusion:

Although savings accounts are a very secure way to save and grow your money I don’t like the speed it’s happening at. A 1% to 3% growth a year after inflation is simply not enough for me. This may have something to with being an entrepreneur, we tend to like some risk taking With mutual funds, although a bit more risky, my growth averages 28.6% a year, spread out over all funds I have. If you decide to invest in mutual funds, start with low risk funds and get a feel for it. Alternately, some banks offer to invest your money in mutual funds on your behalf. Although the management fees will be a bit higher, the rewards will be higher as well, compared to a savings account. Just beware, and pick someone you can trust (ie. the bank, not someone from an ad in the paper).

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