How many of us remember Benjamin Franklin’s aphorism: “A penny saved is a penny earned?” I bet most everyone who reads this article. But how many of us actually heed his advice?

Let’s apply some modern accounting principles to this time-honored phrase. If your great, great, great, great, great grandfather had invested a penny in 1800 (ten years after Mr. Franklin died) and it had earned only enough to keep up with inflation, you’d have 10 cents today. That’s assuming he or any relatives didn’t spend it before you got it.

Ten cents doesn’t sound like much by today’s standards, but when you consider it, we are looking at a 900 percent return on our money. That doesn’t sound too bad, does it? But what would you say if I told you that represented a return of less than 1.2% per year? Now, what would you say if I told you that same penny would be worth over $69 million at a conservative return of 12% per year (the overall, average rate of return from the stock market since it began)?

Some people might respond that they don’t expect to live 200 years and don’t care that much about what happens in 200 years. To that, we say, “We agree, but read on.” Others might say, “Wow, you mean earning just 12% a year can do that?” Our response to both groups, is that we wouldn’t invest for that long of a term either, but it does provide a pretty powerful illustration of what saving a few dollars now can do when you compound the interest year after year. That is what we want to talk about.

These days, retirement plans are not as generous as in the past; social security is not as certain as we once thought it would be and education and medical costs are skyrocketing. In other words, now, more than ever, individuals must see to it themselves that their fundamental needs will be met in the future, and not look to corporations or to the government. For that reason, we must all begin to plan our financial future sooner than ever and be more diligent about our savings. So, what are those fundamental things we should plan for in the future?

First, there is educating your children. Costs of higher education are skyrocketing and there is no end in sight. Unless you are super wealthy, that kind of money isn’t going to come out of your salary.

Second, there is your retirement. The Social Security Administration tells us that the Social Security Trust Fund (which invests in U.S. Treasury Obligations) will last until the year 2039 at its current rate. This is okay for older Americans, but what about those entering the job force today? What about those just now entering middle age? In the scheme of things, 39 years is not that far away.

Third, there are future medical costs. Medicare is expected to last only until 2025. Many of today’s citizens will live long past that date and will have need of medical attention.

Finally, there are many other reasons to start saving now, rather than later. Automobiles, homes, vacation property and other large ticket items require cash. Even if you borrow most of the purchase price, there is usually a significant down payment. So, what does this have to do with stocks and the stock market? Plenty.

Right now, the stock market is in a very volatile state. One day, the stock market is up 200 points. The next day it is down 300 points. Investors are at once excited about the tremendous gains to be made, but also very leery of the potential for loss.

The question is what do you do? Do you play it safe and take all of your money, put it in the bank and earn a small return on your investment, or do you gamble on the stock market? And what about bonds?

The answer depends on how much you can afford to lose, how old your are, how much risk you want to take and how optimistic you are. For that, you need to know yourself.

First, determine what your future needs will be. There are numerous websites out there that can help you calculate expected long-term care, college and retirement needs, etc.

Next, determine what you already have. How much cash and investments do you have? Is your house paid for, or is the mortgage taking a chunk of your money each month? Do you own any land, or investment property? Do you have any retirement accounts? Do you have much outstanding in credit card and/or other debt? In other words, take a good account of your assets, your fixed expenses and your debt load.

The next step is to determine exactly what your real “needs” are for a comfortable lifestyle. And equally important, determine also what you really don’t need. How vital is that new bass boat, or will the current one do? Is that new computer necessary, or do you just like having the biggest and best? When you take a sober assessment of what you owe and what you spend, you may find some of your “needs” are not really needs.

Finally, it is important to develop a plan to begin providing for those future needs. It‘s not important if you’re not able to do everything right away. Even starting small will help in the long run. What is important is that you begin saving and using the miracle of compounding that Benjamin Franklin told us about over two hundred years ago.

Once you have established your plan, there is one final rule that will help you, perhaps more than any other: Be patient! This was a lesson learned by only a few people in 1987 when the stock market crashed. Many people converted their investments into cash. If they had only realized that the stock market would always have its ups and downs and been patient, they would have stayed put and profited. Not only did the market not take long to recover, it went on to far exceed everyone’s wildest expectations.

If you are going to have a short-term perspective, our advice is: Stay away from the market! It will scare you to death. If you still want to invest in the market, expect to lose as well as win and only invest money that you can afford to lose.
If you are going to invest in the market, truly invest. That means take your money, put it into good investments and then ride out the ups and downs in the market. Assuming you are in a good fund, you can expect relatively high yields over a period of time.

That doesn’t mean invest and forget. Keep your eyes on your investments. If something happens that affects your investments, evaluate those changes (such as change in fund manager, change in company management, change in industry, etc). If the changes mean you need to move your money, move it, but don’t let the emotions of the moment cause you to move your money from a fundamentally sound investment into something that may be unwise, based on a snap judgement.

Does this all sound a bit confusing? It doesn’t have to be. Ultimately, all you need is a little assistance in developing a practical plan and some support in sticking to it. Let us help you with those plans. After all, that’s what we are here for.