Saturday, May 27, 2000

Saving comes before investing

Many people need advice

By Roberto Cruz
The Cincinnati Enquirer

        What Americans need from financial advisers and the media is not the endless debate about where to invest. What they need is practical advice on how to start saving and a basic understanding of how even modest savings can grow to big amounts.

        That was the clear message at a news conference in Washington, D.C., to discuss a new study on retirement savings by the not-for-profit Consumer Federation of America and a companion survey by Inc., a firm that provides financial planning online and plans to offer free consultations soon.

        “There are millions of Americans who don't know how to start saving,” said Frank C. Armstrong, a certified financial planner in Miami and chief investment strate gist for For them, “the debate about asset allocation or which mutual fund to buy is irrelevant if they don't even understand compound interest.”

        The concept of compound interest — interest earned not only on the amount initially invested but also on all the accumulated interest — is essential to financial planning and building wealth.

        Compound interest is the reason why starting to save as soon as possible is so important, to give the money more time to grow. Studies have shown repeatedly that most Americans grossly underestimate the money they could save by consistently setting aside small sums.

        “Accumulating retirement money is much more about saving than investing,” said Brian L. Hollander, president and chief executive officer of in Hartford, Conn. “Investing is very important but there is no substitute for saving and beginning to save early.”

        One problem is that many lower-income and middle-income Americans don't take advantage of saving and investing opportuni ties or even know they exist. They get into credit card debt and cash out of employer plans when they switch jobs, triggering taxes and penalties. They think they can't get help with financial planning because it costs too much and they don't have enough money to invest anyway.

        “Low- and moderate-income households believe they are stuck with a 2 percent money market account” at a bank, said Stephen Brobeck, executive director of the consumer federation. But in fact they have access to other investments with the potential for much higher returns, including retirement plans at work and hundreds of low-cost, low-minimum mutual funds for other savings.

        The consumer federation and have teamed up to offer one way at the federation's Web site, A retirement savings tool kit features five calculators to help consumers figure out how much their savings will grow over time, how to get the most from their individual retirement accounts and 401(k) plans and how to come up with an asset alloca tion mix for their investments.

        In addition, Mr. Hollander said that in a few weeks his firm plans to offer consumers a free financial consultation through the Web site., which has enjoyed positive reviews in the financial press, is designed to offer consumers the same type of overall financial planning advice for which a fee-only planner may charge as much as $1,000, Mr. Hollander said.

        For $75 a year, users get a personalized plan for each of their financial goals, based on the information they enter, along with an unlimited number of updates if their circumstances change or if they want to explore “what if” scenarios. targets “uncounted millions of Americans, mostly in the middle and working classes,” who would never think of using a financial planner because of the cost, according to the firm's literature. To this group I have no qualms recommending trying the service, particularly in light of the firm's 30-day money-back guarantee.


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