Reserves are the foundation for asset accumulation. Don’t be distracted by investment terminology. Reserves need to be accessible from month to month. The return on investment is of little concern because the assumption is that funds will be used routinely to fund expenses that otherwise might require the use of credit. If your reserve account only gets ½% in interest and you avoid paying 10% in credit interest; your real return on investment is 10.5% and debt free! Never underestimate the value of having reserves.

Savings are the next level of accumulation. A savings account is interim accumulation, invested in interest bearing accounts, CDs, money market savings accounts, or accessible investment funds that are liquid enough to supplement cash flow in times of unemployment, underemployment, or exceptional expenses or need. Savings accounts can also be used to fund personal rewards and special purchases.

Investments have a greater time horizon than savings. Investments are meant to go untouched unless there is an extreme need or major long-term planned expense; education, home purchase, retirement. Investments provide asset growth through additional contribution (transfers of excess savings and contributions to retirement accounts), growth, and reinvestment of earnings. Most investment companies offer online services that provide enough guidance for people to select appropriate mutual funds or stocks based on risk tolerance and time horizons (when the funds must be available for spend-down).

Working with a carefully selected investment advisor can provide relief from the stress and responsibility of managing investment accounts.