Dear Dr. Don,
I have about $85,000 in a high-yield savings account, which is earning 0.8 percent annual percentage rate. I want to invest some of this, but I know nothing about investing. Is there any type of investment that is relatively safe? Should I invest in certificates of deposit, bonds, stocks or what? I’ve invested in CDs before. I hesitate to now, because the rates are so low. Thank you for your help!
— Sue Stocks

Dear Sue,
Like many investment professionals, I distinguish between savings and investment. With savings, the individual is looking for the right combination of safety, convenience, liquidity and yield. Savers typically are unwilling to take on any risk to principal.

Investors are looking to build wealth by investing in longer-term financial securities, which can include stocks and bonds, and mutual funds and exchange-traded funds, or ETFs, that invest in stocks and bonds. The saver looking to become an investor takes his first steps into investing by understanding that while there’s a potential risk to principal, there also are higher expected returns on these investments than on savings.

The key is in the phrase “higher expected returns.” No one knows for sure when the stock market might head south, otherwise investors would avoid the market during those times. People have to expect that the stock market will outperform savings yields, or they won’t invest in stocks. But the stock market won’t always live up to investors’ expectations.

Take a look at the big picture. How much of your $85,000 currently represents savings in an emergency fund? You don’t want to invest that part of the money. What stage are you at in your career, or how close are you to retirement? What other investments do you have, and how are they invested? Do you expect to receive pension income or Social Security benefits?

The problem in moving your deposits to CDs from high-yield savings is that you lose liquidity, and you’re not picking up all that much in yield. Bankrate’s highest reported rate on a five-year CD is, as of this writing, an annual percentage yield, or APY, of 1.8 percent. While that’s more than twice what you’re earning in your high-yield savings account, it’s not a big difference considering you’d be locking your money up for the next five years. After taxes and inflation, you’re likely to lose purchasing power over time with both the high-yield savings account and the five-year CD.

You have to decide how much risk you’re willing to take with any investment. Working with a financial planning professional — ideally on a fee-only basis — can help. A pro can educate you about investing and help you determine what role(s) your $85,000 should play toward achieving your financial goals.

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