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CIO Blog

By Paul Hrabal, Chief Investment Officer of One Fund

June 18, 2009

Saving Is Job #1

When people come up to me and start sharing their investment strategies and ideas, I really want to stop and ask them “How much money do you save every month?”

The answer to that question has a much greater impact on whether you achieve your financial goals than where you invest your money.

If you do not save enough of your income on a weekly, monthly and annual basis, it may not matter as much where you put your money or what return you get on your investments. Your time available to reach your financial goals is limited. By far, one of the largest factors in a successful investment strategy is how much you save and how soon you start to save.

A potentially high savings rate may compensate for below average investment returns and poor investment decisions, but the opposite is rarely true. Even if you are exactly right in picking the best performing investments and hit a home run with every investment decision you make, if you haven’t saved enough, early enough, you are not going to reach your goals.

Consumption Society

And it looks like Americans aren’t saving nearly enough. In past decades the U.S. household savings rate averaged 7%, but this decade it dropped precipitously, even turning negative for several quarters from 2003-07. We spent more than we took in, borrowing from credit cards and home equity lines. With the recession in full gear, it appears Americans may have heard the message and the savings rate is up to 5.7%, but still below the historical average (Forbes, June 15, 2009).

Will Americans continue to save after the economy rebounds or go back to their consuming ways?

Methodical Saver Wins

The math seems clear – saving should be job #1 (and probably job #2 and #3.)

Take the U.S. household median income of roughly $50,000. Compare saving 2%, 5% and 8% of that income each month over 20 years:



The hypothetical 8% saver above has 300% more than the 2% saver in 20 years, assuming their money grows at 8% per year. These results are hypothetical and do not represent any particular investment.

Someone who thinks they can save less and make it up with phenomenal investment choices may be disappointed. As the below chart shows, even if your investment choices perform 100% better than the average stock market return for 20 years straight (practically an impossibility), but you save only 2% of your income, you are still far behind the methodical 8% saver who gets only average investment returns.



The hypothetical 2% saver with above normal returns ends up with 26-58% less than the 8% saver with average returns.

Insurance Against The Downside?

Consistently saving over the long term potentially allows you to make progress towards your financial goals even when markets gyrate up and down or you make a poor investment choice.

So the next time a friend or family member wants to talk about investment ideas, turn the discussion instead to ideas on how to save more of what you make. It matters a whole lot more to your future.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus. Please read the prospectus carefully before you invest.

An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Other Fund risks include asset allocation risk, foreign securities and currency risk, emerging markets risk, small-cap, mid-cap and large-cap risk, trading risk, and turnover risk that can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the risks, which can result in higher volatility, associated with the underlying ETFs that comprise this “fund of funds”. Newly organized, actively managed Funds have no trading history and there can be no assurance that active trading markets will be developed or maintained. Brokerage costs will reduce returns. When the Fund invests in Underlying ETFs, in addition to directly bearing the expenses associated with its own operations, it will bear a pro rata portion of the Underlying ETFs’ expenses (including operating costs and management fees). Consequently, an investment in the Fund entails more direct and indirect expenses than a direct investment in the Underlying ETF.

Distributed by Foreside Fund Services, LLC.