Three common investment myths. Courtesy of Edward Jones in Windham

Myths and assumptions can be detrimental to your success in all areas of life – including achieving your financial goals. When it comes to investing, it's vital to separate fact from fiction. Here are three common myths you'll want to erase right from the start.

1. Saving is investing.

If you’re putting money aside in a low, fixed interest rate savings or money market account, this isn’t investing. This can offer a cushion for emergencies and unexpected spending needs, but it’s only one piece of a financial strategy. 

Investing is using your money to potentially create more money over a period of time.

Some people may shy away from investing, thinking it's too risky. Although investing does come with risks, not investing can also be a risk to your financial future. If your money doesn't grow, you may face the risk of not achieving your long-term goals – like sending a child to college or retiring from your job.

The following graph illustrates the potential difference between saving and investing. It shows how the same contributions over the same amount of time can grow to a much larger amount when earning a higher return.

Source: Edward Jones. Assumes saving $550 per month rounded to the nearest $5,000. Example is for illustration purposes only and does not reflect the performance of a specific investment.

This example shows that the difference between a 3% and 7% return could be nearly $600,000. 

Investing takes some homework. That’s why many investors seek professional guidance.

1. You should buy and sell often.

Being patient can be difficult. But trust us on this: Jumping on the bandwagon of the latest investment fad and selling every time the market drops probably won’t get you to your goals.

We believe in quality investments, not fads. We believe a financial strategy should be created for market ups and downs. And when the markets are volatile, Edward Jones can help you put these events into perspective.

2. You’re too young or too old.

The sooner, the better – but it's never too late. Obviously, starting early is a good idea, because your money has more time to grow. But it’s really never too late to start investing.

In fact, if you’re over age 50, you may be eligible to make catch-up contributions to an Individual Retirement Account or 401(k). And, if you're closer to retirement age, you’ll want a financial strategy to help ensure your money lasts. Lastly, when the time comes, all of us should plan for where our money will go when we’re gone.

How much should I save for emergencies? Courtesy of Windham Edward Jones

It’s always a good idea to save some cash for a “rainy day.” An Edward Jones financial advisor can help make sure your savings support your overall financial strategy. After all, you’ve worked hard to keep your financial strategy on track, right? An unexpected expense could easily derail that strategy.
 

That's why it's so important to prepare for unexpected events or expenses, like:

A job loss or early retirement

Large housing or auto repairs

Expenses related to child care or aging parents

Creating an emergency fund

One way to prepare financially for things like these is by creating an emergency fund. We know that putting money away to prepare for the unexpected can be hard, especially if you don't know how much you'll need – after all, they call these unexpected expenses for a reason.

As a starting point, consider saving:

If you're still working - between three and six months' worth of living expenses

If you are retired - up to three months of living expenses for emergencies, as well as about 12 months' worth of living expenses (after accounting for outside sources of income) to provide for your everyday spending

Why the ranges? If you're employed, these guidelines factor in the average length of unemployment – four months – as well as the potential for other needs. If you’re retired, you face many of the same potential emergencies (excluding a job loss) – except you are now also responsible for creating your own "paycheck" for your everyday expenses.

Regardless of whether you're working or not, you may also want to look into your access to a personal line of credit. It can help you supplement your emergency savings if the need arises.

How much should I have in cash for other USES?

While you might think “the more, the better,” that isn’t necessarily the case. Having too much of your savings sitting in cash can be an issue, especially when you’re investing for long-term goals such as retirement. Ultimately, your cash strategy can be a key factor in your long-term financial success.

To determine the role of cash in your financial life and how much you should have, look at your “USES”:

Unexpected expenses and emergencies – cash used for situations such as a job loss, a home repair or an unplanned medical expense.

Specific short-term savings goals – cash dedicated for a goal that will occur within the next year or so, such as a wedding or vacation.

Everyday spending – cash used for your lifestyle and day-to-day spending needs, such as groceries, utilities, mortgage and debt payments, and entertainment.

Source of investment – cash used as an asset class and as a source for investment opportunities

Use the chart below as a starting point to think about how much cash you may need for different USES: