Practical analysis for investment professionals
22 May 2014

Why Should You Save?

Posted In: Philosophy

“A penny saved is a penny earned” is a truth that is part of the fundamental basis of good financial management, yet many people fail to see the importance of developing good saving habits.

Achieving your long-term financial goals depends on two separate, yet complementary skills: fiscal discipline and investment discipline. Fiscal discipline means saving or otherwise gathering capital to invest, whereas investment discipline involves building a portfolio and managing risk in order to reach your investment goals.

It is important to remember that to be a successful investor, you first have to be a successful saver. The development of a regular saving pattern early in life is an important step in creating a stable foundation. This habit can help you meet your goals. Developing a savings discipline will allow you the opportunity to do the following:

  • Build a safety net. Murphy’s Law holds that “anything that can go wrong will go wrong.” It may not be healthy to have such a pessimistic outlook on life, but when it comes to building a healthy future, the best course of action is to proceed with caution. If there is one lesson to take away from the economic crisis, it is that shocks to the financial system can have a devastating impact on the personal fortunes of anyone and everyone. A safety net can serve as a buffer against unexpected lifestyle changes and cataclysmic events.
  • Create wealth through investing. Over time, the stock market has proven to be one of the best ways for individuals to build wealth, but you need savings to take advantage of it. Nearly everyone would like to be financially secure, and investing is one of the best ways to accomplish that goal—but you need capital in order for it to work. Saving is the best way to get that capital.
  • Secure a time advantage. Albert Einstein reportedly referred to compound interest and its ability to help investments grow as the most powerful force in the world. Though we cannot be sure he actually said that, he certainly would have been right to: The power of compounding and the time to ride out market swings are what allow younger investors to take either more risk (in hopes of a greater return) or less risk (and still achieve the same goals) than older investors.
  • Develop experience. You will not become a proficient saver or investor overnight. It takes time to build the financial discipline necessary to save when you can, and the same goes for building the analytical skills needed to estimate the value of a security or to distinguish a mispriced asset from one with limited growth prospects. The earlier you start, the better you will get.

Though an exhaustive list of the benefits of saving would be almost infinite, after a certain point it is almost more important to stop thinking and begin putting money away. Saving smart and saving early is critical to reaching your retirement goals.

We have been focusing on this topic for the past few days on Inside Investing, and it is merited. We’ve covered the difficulty in planning for a secure retirement as well as some techniques to help you save automatically. Both of those topics were inspired by one of our recent projects, a globally relevant document that outlines the key steps to take in planning for retirement.

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
Robert Stammers, CFA

Robert Stammers, CFA, was director of Investor Engagement for CFA Institute and was responsible for increasing the use and distribution of Future of Finance and CFA Institute content by various audiences. Prior to joining CFA Institute, Stammers was the principal for his founded company where he consulted for real estate owners, lenders, and syndicators to develop and analyze structured real estate investments. There he devised strategy for obtaining debt and preferred equity capital and created finance-related marketing materials and research papers for various clients. Stammers has authored over 100 articles on various financial and investment topics for such investment periodicals as Forbes and Investopedia. He served as a senior equity analyst, where he was responsible for the creation of new investment tools and instructional products to provide the revenues for two new investment education companies. As a senior executive for several institutional fund managers, Stammers was the portfolio manager for a $1 billion enhanced real estate fund, a $1.2 billion private timber fund, and several pension fund separate accounts.

2 thoughts on “Why Should You Save?”

  1. Rohit bhimrao Pol says:

    hello sir,
    I am rohit i would to do CFA for that i need a advise bcoz little confused about my carrer wht to do nxt .nw i doing C.A in india wanted to do CFA as i like finance field .so i need a advised how should i proceed or whether 2 do MBA in finance or not .plz revert soon , thank you

    1. William Ortel says:

      Rohit —

      Thanks for your note! I’ll give you a couple of quick suggestions, but the decision to pursue the CFA designation is very much your own. I would suggest first coming up with an understanding of the sort of role you are seeking (the career guide that my colleagues in our Asia-Pacific region put together can be helpful for this) and then review our “which program is right for you?” page.

      Best of luck!


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