On a daily basis, there is a litany of articles and advertisements encouraging you to invest your savings with the promise of future wealth and retirement security.

But which is right?

First, let’s clear up a misconception.

You are NOT an investor. You are a SAVER.

You go to work every day, work hard for the paycheck you receive, of which you “save a few shillings” to put away for a “rainy day.”

If you do it right, you get to retire with enough savings to continue living in the manner with which you have become accustomed.

Do it wrong, such as “undersaving” with the hopes that higher rates of return will make up the difference, and problems arise. This is the case with all of the municipal pensions funds in the U.S. currently facing a $4-5 Trillion dollar shortfall.

Which Method You Choose Matters

As a “saver,” trying to reach our financial objectives, we have three primary responsibilities:

There have been plenty of times in history where you literally could stick your money in a “savings” account and earn enough, “risk-free,” to “save” your way to retirement. The chart below shows the savings rate on short-term deposits adjusted for inflation.

You will notice that when the Federal Reserve “goes on the attack” to battle recessionary drags brought on by their very own “rate hike” campaigns, savers paid the price. In the major bear markets of 1974, 2000 and 2008, the rate has gone negative giving investors few choices but to “seek yield” by taking on more aggressive investment risk.

Currently, I won’t argue that you do need to “put your savings” to work in the market. The Federal Reserve’s campaign since the “Financial Crisis” has been to force “savers” out of cash and into the financial markets to bail out banks, Wall Street and create a “wealth effect” that would “trickle down” through the economy.

Well, as they say, “two out of three ain’t bad.” 

Unfortunately, for the average American, the current “negative savings rate” will no longer suffice in ensuring your savings adjust for purchasing power parity in the future. 

So, as a saver, which method of “saving” for your retirement should you choose in order to accomplish the three basic goals noted above?

Here are your 3-options: