Want a savings plan to succeed? Then adjust your attitude and do some homework

Americans need help to save.

I don't mean handouts or bailouts, or "fixing" the economy, whatever that means. I'm talking about reemphasizing simple but powerful concepts that work: Save regularly, even if it's little by little, and never invest in anything you don't understand or is riskier than you can afford.

And please, let's lose the what's-the-use attitude. As reader Katherine Hinckley of Ohio wisely observed, "The real key to savings lies in attitudes."

Americans know they're not saving enough but don't do much about it. One major reason is lack of basic knowledge.

"I should have never listened to you," wrote a reader who opened an IRA. "All I've done is lose money in the market." From a second reader: "Why don't you tell your readers other stuff, too: Your financial adviser makes a pretty good commission selling you the IRA." From a third: "I opened an IRA at a discount broker. Can I buy certificates of deposit? I'm not adept at investing. Please help!"

It needs repeating: An IRA is not a type of investment, such as a stock or mutual fund would be. It is a type of account that gives tax breaks for saving for retirement. You don't need to invest "in the market" or pay commissions to open an IRA. You can do it at a bank and keep all your money in CDs. (Even with a broker you can buy federally insured CDs.)

Another reason (excuse?) given for not saving is that interest rates are low. "Maybe if interest rates went back to 5 percent I would start saving," a reader wrote. "But now it doesn't pay to save."

Ah, but it does. When you start saving, you don't have that much principal to earn interest on. It's only after you have accumulated a fair amount of savings that a higher rate makes a significant difference.

If you save $200 a month at 5 percent interest, you'll have $2,456 after one year. If you earn 2 percent, you'll have $2,422, just $34 less. I would argue it pays to start saving now so that, if rates go back up, you'll have more money to earn the higher interest.

And if rates don't go up, you'll have more savings to possibly put into investments that tend to do well when rates stay low, such as low-cost, broadly diversified stock mutual funds.

Afraid of stocks? My e-mail box is full of tales of woe from readers who've lost 20 percent or more of their retirement savings this year. That's a feat of sorts, considering losses in broad market averages, as I write this, have been in the single digits.

The problem: Many Americans put too much money in risky investments they don't understand. Some top-selling investments this year have been leveraged exchange-traded funds (do you even know what that means?) that can lose twice as much value as the market index they track. Other investors who could ill afford it bet the farm and lost big with financial-sector stocks. Whatever happened to having a well-diversified portfolio consistent with our risk tolerance?

Humberto Cruz is a columnist for the South Florida Sun-Sentinel. He can be reached at AskHumberto@aol.com.