I alluded to this in a post yesterday, the title of which got my girlfriend’s attention. Anyway, sometimes it makes more sense not to chase the highest returns. The Money Magazine Expert, Walter Updegrave, agrees.
In his latest advice column, he tackles the problem of a couple with a healthy emergency fund and student loan debt. Updegrave starts by taking a purely financial look at the situation, evaluating the returns through savings account interest and the interest rate on the loan, but then…
The point of keeping the money in the savings account isn’t just to maximize your return. If that were your only goal, you probably wouldn’t invest in that type of account at all. You’d put your thirty grand in a combination of stock and bond mutual funds, which are likely to pay a much higher return over the long term.
His conclusion is that different answers may be right for different people, for different reasons. That’s such an important point to remember, especially in a world where people want one-size-fits-all solutions to their problems — a world in which people latch onto catchphrases and over-simplifications that work well only in a world ruled by marketing.
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{ 2 comments… read them below or add one }
I think one of the reasons people often get frustrated with personal finance is that the answers to their money questions are often, “it depends”.
What can we do when we hear that answer?
1) Take the time to research our situation ourselves
2) Ask a question on a pf blog!
3) Hire a financial professional
We can try any combination of the above suggestions. The one thing we SHOULDN’T do is walk away and not act because it seems to confusing.
This is probably the biggest change that I have had since writing about personal finances. There are so many variables involved with each individual that there is rarely a black and white right and wrong answer. There are certainly times when money is not the most important factor.