When it comes to longer term financial goals, such as retirement, most people are faced with two options: save or invest.
Ideally, it’s a good idea to do both when money, time, and resources allow, as each option has its own benefits and drawbacks. Still, for certain goals, some may prefer one or the other. Read on to find out which option is best suited for you.
Savings
As a general rule of thumb, EVERYONE should have at least one savings account for emergency funds. Besides that, there are plenty of savings options that allow you to safely store your money while accruing earned interest. That said, current interest rates on savings accounts are less than desirable, meaning returns are pretty low. If anything they can provide your account with a little “boost”, but in order for your saving strategy to be effective, you have to make sure you contribute on a regular basis—be it every pay check or every month. That said, there are savings options that can help you grow your money a little faster, like CDs and Bonds.
On the positive side, money in your savings account isn’t going anywhere unless you touch it. So if there’s a dip in the stock market, you don’t have to worry about losing your earnings or principal. There are also times when saving is a much better option than investing, such as when you’re in debt or if you want to save for a big, upcoming expense.
Investing
Investing is the concept of buying things that might potentially grow in value—such as stock, shares, or property—in order to grow your money. Common investment options, such as a 401(k) or an IRA, are generally used with a retirement goal in mind. Basically, the money you put in, along with the earnings, are invested in various stock options of your choosing, all of which have different levels of risk and return.
Your investment strategy hinges primarily on your goals. For short term goals, you’re better off saving. But for long term goals, such as saving for your child’s wedding, or for a comfortable retirement, then investing is a good way to go.
The obvious downside to investing is the risk. If whatever you invest in loses value, then you’ll lose the money you’ve earned—possibly your principle. This is why it’s always good to save AND invest at the same time. Generally speaking, higher risks have higher returns and lower risks have lower returns. So before you decide to invest, you’ll need to determine what level of risk you’re willing to take.
You’ll also need to decide if you’re financially stable enough to start investing. As said above, if you’re in debt, then now may not be the best time.
If you’re interested in opening a savings account or exploring your investment options, contact your local NobleBank branch today.