Well, the good news is that most of the debate does not affect us directly (aside from the impact on the economy, of course). Before we can go on, we have to make the distinction between individual and institutional investors. We are the former: we have a few dollars that we want to put somewhere for a later purchase or to fund retirement. The latter have massive amounts of wealth at their disposal—a few hundred million dollars and frequently many billions. Unlike us, they have well-funded legal departments and employ risk analysts to devise their investment strategy. It is generally understood that they need less protection than we do, which also means they can lose a lot more. Mortgage-backed securities, which many blame for the current financial crisis and which incurred incredible losses, were frequently sold in bundles of a billion dollars, slightly out of our budget.

The issues that affect them (and that future regulation is supposed to prevent) don’t need to concern us. So if the complexity of financial products scares you, don’t worry: we can safely ignore most of them and instead look at much simpler investments. Complicated investments peddled by bankers aren’t necessarily better, and in fact can be much worse when you (or the bank) don’t have an understanding of the risks. The investments we’ll look at are separated into short and long-term savings.

Although credit cards let us get by even if our checking accounts are empty, carrying a balance can become very expensive. One of the first things anyone should have is a savings account with some emergency savings. Things happen, and parents may not always be able or willing to help out, so it’s important to have some money you can access immediately. The general wisdom is to have savings equivalent of three months spending tucked away in a savings account. Some of that money may also be invested in Certificates of Deposits (CDs), with which you give the bank your money for a fixed term (e.g. one year) and in return receive a higher interest rate than what you would get in your savings account.

Because these investments offer you quick access to money and are fully insured by the government (up to $250,000), should the bank go bankrupt, you have no risk to speak of. That also means your return is pretty bad: 1.5 percent for CDs if you go with a well paying, online-only bank. That’s not going to let you retire anytime soon. Fortunately, money that you can put away longer can be invested with a higher risk, and therefore provide you with a better return.

Long-term savings are usually motivated by two sets of goals: future purchases and retirement. You may think that you shouldn’t have to worry about retirement already, and with proper planning, you never have to. Both the government and private industry encourage saving for retirement. The government lets you open a Roth IRA account (no fancy acronym, it’s named after Senator Roth) as long as you earn less than $120,000 per year. This account allows you to invest up to $2,000 per year and draw from it once you’re retired without having to pay taxes on the gains. Through your employer, you can most likely get a 401(K) account, which lets you deduct all contributions from your taxable income—but you will have to pay taxes when you withdraw the money. Firms often match your contributions up to a certain point. If you, for example, put $5,000 into your 401(K), your employer might add another $2,500 for you. That is essentially free money, so make sure you know the matching policy of your employer and take advantage of it! A common strategy is to invest in your 401(K) until you have reached the maximum employer matching, and then contribute to your Roth IRA. Once you retire, you can take advantage of the tax code to significantly reduce how much taxes you have to pay. While your investment options may be more limited in these accounts, you will still have to choose something to invest your savings in.

One prominent investment option is to invest in so-called “Target Retirement Funds” that let you specify the year you wish to retire. As you get closer to retirement, they will pull your investments from risky assets (e.g. stocks) and put them into more secure assets (e.g. government debt, cash). That way you don’t have to concern yourself with the details of rebalancing and risk management (both of which can be fairly time consuming) and instead let the professionals do it. You can take on more risk and get a higher return while you’re young and can wait out the market swings. But at the same time, you won’t find yourself unable to retire because the market crashed.

No matter what you are saving for, the most important thing is to start saving early and to put money aside regularly (e.g. whenever you get a paycheck). As you put aside even small amounts, they will add up and you get to benefit from compound interest. Consider this example: you want to retire 40 years from now and with a million dollars adjusted for inflation (you care about how much stuff you can buy, not what a number on a piece of paper says). So from your retirement account, you could expect to get eight percent per year return, or five percent once adjusted for inflation. To reach your goal, you’d have to invest $650 per month. If your employer matches half of your contribution, it’s down to $440 per month out of your paycheck. But let’s say you wait until you’re in your 40s and now only have 20 years to save. You still want the same million dollars, but now it would take you $2,500 per month to reach your target. Because annual employer contributions are capped, you’ll also have to do almost all of that saving on your own. Evidently, it makes a lot of sense to start early and let time work for you. The beauty (or not) of capitalism is that simply delaying to spend you money, makes you money. In many cases more than actually working: with said million dollars, you could expect to get $50,000 per year without getting out of bed. Now that’s what I call retirement.