Beyond Mattress Stuffing: What To Do With Your Savings

NEW YORK (MainStreet) — Interest rates are creeping up a bit but still remain painfully low for investors. You want to save money for retirement, but you want to do it the right way. How much should you have in your savings account? What do you do after that? We spoke to a number of investment and retirement planning experts to provide you with a range of options on how you can prudently park your money in places other than a savings account.

First Things First

Before you start with anything else in this article, experts agree: you should max out any contribution that you're making to a matching 401(k) program and have between four and six months worth of emergency saving socked away. After all, a savings account has one very attractive feature: you can pull it out whenever you want without a penalty.

Using CDs the Right Way

Certificates of deposit (CDs) don't offer interest rates that are fabulous. When used properly, however, points out David Mazzetti, a certified retirement and financial planner with Ameriprise, they can provide a semi-liquid source of funds at more attractive interest rates than a traditional savings account. It's called laddering, and it works like this: you stagger your CD purchases so that they're maturing once every year or once every six months. "This allows you access to longer-term rates, while also providing some liquidity," he explains.

Investing Wisely in the Market

Elle Kaplan, CEO and Founding Partner of Lexion Capital Management, LLC is very direct: "Anything beyond six to eight months of real living expenses in a savings account is modern-day mattress stuffing." She also has a very simple answer about how to save. "Any money you don't need for three years should be invested, and it should be invested in the stock market."

Isn't that a bit risky? "The risk is in not investing," she says, adding that, "the stock market goes up 8% to 10% over the long term. A little bit can compound a lot over a long period of time." For the regular, 9-to-5 worker who is investing, heading down to the local discount brokerage firm and investing in low-cost, diversified exchange-traded funds is the answer.

She further urges people to set aside money for this purpose automatically. "Set it and forget it," she says. "Making decisions on a paycheck-by-paycheck basis allows for too many chances to make excuses to not save."

The S&P 500

Rather than investing in segments of the stock market, why not invest in the biggest companies on the market? That's a suggestion from Casey Mervine, vice president and financial consultant with Schwab in Torrance, Calif. It's not without risks; for example, you might be inadvertently investing in the next Lehmann Brothers, AGL or Enron. On the other hand, you might also be holding a piece of the next Apple.

The problem with more localized investing for the average person is that "people are looking in the rear view," says Mervine, "You can't invest in the '60s or the '70s. You have to invest today." Still, if you look at the long-term, you're going to see an increase in value over time. "This is an option for people who have a high aversion to expense for asset management and think that no one can pick better stocks than the overall market," Mervine said.

Fixed-Index Annuities

Ellie Kay might not work on Wall Street, but she does have a lot to boast about: she's written 15 books and led her family of nine out from underneath $40,000 of consumer debt. These provide what a lot of people are looking for in a world where pensions are largely a thing of the past: guaranteed income.

"I have a philosophy of hoping for the best and planning for the worst," she says. "If we have a double-dip recession and you have an FIA, you still have a guaranteed income. You have your money protected." What's more, if you have the money locked up, you won't have to worry about your kids coming and asking you for money -- you just won't have it to give. Perhaps best of all, the FIA is within just about any consumer's reach. "$5,000 can get you a really nice FIA," says Kay.

Higher-Risk Options

Of course, for younger people in their 20s and 30s, a little bit of risk might not be a bad thing. Jack Bosch, author of Forever Cash (Morgan James, 2013), is a big fan of what has been called "vulture investing." Effectively, you bid on a property tax lien and then one of two things happens: the person pays it off and you make a return on that, or he doesn't and you own a house. "This is something that most people don't know about," Bosch said.

Bosch concedes that you're going to have to do some research before you set foot at an auction. "There's definitely going to be some junk properties at the auction," he says, "If people want to do nothing, they can just throw it in a mutual fund." However, if you do a bit of legwork you stand a chance of making a handsome return on your investment.

Indeed, Bosch has a philosophy that differs from many other experts. "Some people think they need to reach a magic number or accrue a mountain of cash to retire," he says, "I think it's more about building up your cash flow."

Get an Advisor

Of course, you might already have things in your portfolio that are great investments that you're underutilizing. This is one of the reasons that Mazzetti believes everyone should have an advisor.

"You may have a golden ticket there for a savings account and not even know it," he says. "We know what these contracts look like so we can find it pretty quickly."

--Written by Nicholas Pell for MainStreet

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