Saving? Investing? Which is right for you?
Should You Save or Invest?
Having a savings plan is a great strategy for putting back cash and growing your wealth.
Whether it be for an emergency, vacation or retirement fund, getting in the habit of saving money helps you achieve your financial goals quicker and easier.
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However, investing presents the same benefits and can yield even more savings.
For example, saving money in a standard savings account creates a safe place to collect your money. But that money doesn’t grow unless you add more to it.
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With investing, your money has the chance to grow on its own—whether you contribute or not.
When it comes to your money, it’s all about what works best for you and your financial goals.
In this article, we’ll explore the pros and cons of saving vs. investing.
What Are The Pros and Cons of Saving?
Saving can be an excellent way to meet short or long term goals depending on the dollar amount you have in mind.
There are different savings vehicles—such as traditional banking, health savings (HSAs) and money market accounts—for different savings goals. Each has their own guidelines, but the overall savings returns is about the same.
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Here are the pros of savings:
● Little to no risk. Because you aren’t putting your money at risk, you won’t lose any money on your savings.
● Goals are easier to reach. With clear financial goals, and a reasonable spending and savings plan, you can achieve your goal amount on schedule as you control how much you put back and when.
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And here are the cons:
● Inflation can hurt your profits. The biggest con with saving without investing is your money will lose its value over time as the cost of living rises.
● Low returns on your money. Even if you’re saving in a traditional account like the ones we mentioned above, these accounts do not provide substantial returns on your principal.
What Are The Pros and Cons of Investing?
Investing is an excellent tool for saving and growing your wealth for long-term goals.
There are a variety of investment vehicles like individual retirement accounts (IRAs), employer-sponsored plans like 401(k)s or trading stocks and bonds. Depending on your investment strategy, you can reduce your risk and increase your gains.
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Here are the pros of investing:
● Can yield higher returns. One of the main reasons people invest their money is because it can be a great way to scale your income. From ROI, dividends and interest payments, your investments can grow substantially on the same or smaller amount of money you would contribute with savings.
● Can potentially withstand inflation. Particular investment vehicles like stocks, real estate and retirement accounts can offer inflation benefits that protect your money from decreasing in value.
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And here are the cons of investing:
● Medium to high risk with value decrease. When you invest in stocks, commodities and other equity securities, you become a shareholder of a company. When the company does well, your investment grows—but when they do poorly, you stand to lose some or all of your money. With retirement investments, these run the risk of losing their purchasing power due to inflation.
● Takes time for investments to mature. While you can earn income with short-term swings in the marketplace, the risks can outweigh the reward. With retirement investments, there may be penalties for withdrawing money before it matures. Thus, to see a decent return on your investments, you’ll have to wait.
Do You Need a Financial Planner?
If you’re not sure which savings plan would fit your money goals, Fyvie Financial is here to help.
We help you organize your finances and create spending and savings plans that make it easier to achieve financial freedom.
Book your free discovery call and speak with one of our Financial Planners today. It’s our pleasure to assist you with your financial preparation!
Citations:
● Castro, B. (2019, August 1). Should you save your money, or invest it? Depends. Investopedia. https://www.investopedia.com/should-you-save-your-money-or-invest-it-depends-4692975
● Cothern, L. (2021, March 8). Investing Vs. Saving: Which Should You Do, When, And How? Money Under 30. https://www.moneyunder30.com/investing-vs-saving
● Annuity.org. (2021, February 11). Saving vs. Investing | The Pros and Cons of Each & Tools to Use. https://www.annuity.org/financial-literacy/saving-vs-investing/