Investing Vs. Saving Money

Investing Vs. Saving Money

When Is The Right Time to Save or Invest?

There are pros and cons to both. It depends on your financial goal and timeline. 

Saving is the conservative route as your dollar amount won’t decrease until you withdraw money from your bank account. However, rarely will a savings account have the interest rate that will help you keep up with inflation; it is good to save if you have a shorter time horizon where you will need to have the funds available.

Investing allows you to profit from the stock market. Using the S&P 500 as an example, since its inception, from 1926 – 2018, the average annual return is 10%.

Of course, if you need a fixed amount by the near future, having your money invested would be taking a risk as the market could dip when you need the money, and you risk assuming a loss.

The best way to look at this question of saving vs. Investing is to determine what you need, when do you need it, and how much you can afford—all factors into this.

Saving Pros & Cons

• Pro – Your money is liquid. You can access it at any time.
• Pro – You aren’t subject to market volatility
• Con – You’ll miss out on market gains
• Con – Rarely do saving accounts keep up with inflation.

Investing Pros & Cons

• Pro – A longer time horizon allows for a higher return
• Pro – The potential to keep up or beat inflation
• Con – Investments may decline
• Con – Some investments may be worthless

Short Term Vs. Long Term

In this post, I share how knowing your time horizon is a factor to consider before investing independently. It also applies to if you should be investing at all.

We save for emergencies and purchases. For example, your annual property tax payment is $2000 due in 12 months; you know how much you need to save and save monthly to have that money ready to withdraw when the time comes.

Investing typically means you have a long term goal in mind, with that comes to a longer time horizon. For example, your retirement. Understanding the different investment vehicles and how to use them is imperative to success.

Thanks for reading,

Michelle