{"id":10623,"date":"2025-02-23T01:10:17","date_gmt":"2025-02-23T01:10:17","guid":{"rendered":"https:\/\/finderica.com\/?p=10623"},"modified":"2025-02-23T01:10:17","modified_gmt":"2025-02-23T01:10:17","slug":"putting-your-money-to-work","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=10623","title":{"rendered":"Putting Your Money To Work"},"content":{"rendered":"\n
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<\/p>\n

Flying dollars<\/p>\n

<\/fbs-accordion>getty<\/small><\/figcaption><\/figure>\n

The idea of \u201cputting your money to work\u201d probably appeals to you. You want your money to do something for you, right? But what does that really mean? After looking at a few financial websites, I\u2019ve identified three broad categories of \u201cmoney working\u201d in current use:<\/p>\n

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  1. Using money wisely<\/li>\n
  2. Maximizing your compensation<\/li>\n
  3. Investing<\/li>\n<\/ol>\n

    I can\u2019t argue with using money wisely or maximizing compensation, but when I hear someone talk about putting money to work, my mind turns immediately to investments.<\/p>\n

    Money is a unique asset. It serves as a medium of exchange, a store of value, and a unit of account. The table below provides some examples of each of those functions. Fundamentally, the functions have to do with liquidity and stable value. You want to be able to easily trade your money for \u201cstuff\u201d today, tomorrow, and into the future \u2014 that\u2019s liquidity. You also want to know how much<\/em> stuff you can buy with a given amount of money over those same time periods \u2014 that\u2019s stable value.<\/p>\n

    <\/p>\n

    Examples<\/p>\n

    <\/fbs-accordion>RICK MILLER, SENSIBLE FINANCIAL PLANNING AND MANAGEMENT<\/small><\/figcaption><\/figure>\n

    My point is simple. As we \u201cput money to work,\u201d going from cash to bank accounts to CDs to bonds to stocks, we move further and further away from \u201cmoney.\u201d<\/p>\n

    Cash<\/strong> is clearly money. If you have cash, you can open your wallet or purse and look at it. You can go to a store and hand over some cash and walk out with stuff.<\/p>\n

    Bank accounts<\/strong> are very close to money. You can receive your salary in your checking account and spend it by writing a check or swiping a debit card. But these accounts are less liquid than cash. They are FDIC insured loans you\u2019ve made to the bank.<\/p>\n

    Certificates of deposit<\/strong> have more limits than savings accounts. You buy<\/em> a CD and receive a specified rate of interest if you hold it until it matures. If you cash it earlier, you may face penalties, losing potential interest or even part of the principal. With bonds<\/strong>, the picture changes. Bonds are loans too, to the U.S. government, to a municipality, or to a company. The prices on your statement may be higher or (sadly) lower than what you paid for them. Deposit insurance doesn\u2019t apply to bonds.<\/p>\n

    While bonds represent borrower (issuer) promises to pay, only Treasury bonds have the backing of the U.S. Treasury. Other bonds have \u201ccredit risk,\u201d the possibility that the issuer will default.<\/p>\n

    In short, bonds are different from money. Bonds make interest payments like savings accounts and CDs, but to buy stuff, you must sell them for money. And you may get back less money than you paid for them.<\/p>\n

    Finally, we come to stock<\/strong>. Companies issue stock to raise money to finance their operations. Stock is a receipt for money you give to a company\u2019s management who use it to run the company. Your statement lists how many shares in each stock you have, how much you paid for them, and the most recent price. Stock prices are unstable. Even the stocks of companies that seemed solid and reliable can go down, sometimes by a lot, even to zero. The table below lists some of the public companies that went bankrupt in just the last three years. Shareholders\u2019 stock became worthless.<\/p>\n

    <\/p>\n

    Some public companies that went bankrupt in the last 3 years<\/p>\n

    <\/fbs-accordion>RICK MILLER, SENSIBLE FINANCIAL PLANNING AND MANAGEMENT<\/small><\/figcaption><\/figure>\n

    When you look at your brokerage statement, it\u2019s harder to see the relationship to your money. Stock statements and certificates seem to be written in a different language. They mention:<\/p>\n