Is it Better To Save or Invest?
Saving and investing are both important aspects of money management, but it can be hard to decide which option is best for wealth-building. In this blog, we’ll break down how to build wealth through either form of money management and what factors go into the decision between saving your money and investing it.
Benefits of Saving vs. Investing
Saving and investing serve different purposes, but they have a similar goal: helping you accumulate money.
Saving involves deferring money regularly to accumulate over time. This money is generally placed into a savings account at a bank, where it can grow with a modest interest rate. Saving in this way is considered very low risk but does not grow considerably outside what is put into savings.
Investing, in its simplest sense, involves buying an asset with the intention of selling the asset at a higher price. The asset purchased could be a portion of a company through the stock market but also something like a property, bond, or collectible.
Depending on the market or asset, investing varies in its risk, time commitment, and financial benefit in building wealth.
When To Save Your Money
While saving may grow more slowly, it is a very reliable way to work toward your financial goals. Short-term investments, like a home down payment, are best left in savings, where returns are guaranteed and the cash is readily available. Generally, if you think you may need the money within five years, it’s best to place it in savings over investments.
It’s also wise to build healthy savings before considering investing. While you may want to diversify your finances, it’s smart to put away at least one month of your total expenses before investing. Savings of around six months of expenses is often considered to be a strong savings goal.
When To Invest Your Money*
Investing money is a long-term game. Consider your financial goals, debt, and emergency funds to determine what and where you’re willing to invest.
A first step is often opening a retirement fund. A retirement fund puts money into diversified, secure, and long-term investments. If your employer offers a 401(k) or another retirement savings plan, they may also match your contributions to that fund up to a specific amount.
Then, if you’re fortunate enough to have healthy savings and are regularly maxing out your retirement contributions, investing in a brokerage, bond, or another asset may be your next move.
Investing in Individual Stocks
If you have a sizable nest egg built up and you consider yourself fairly business-savvy, you may consider investing in individual stocks you believe have high growth potential. Investing this way is even higher risk than investing in a standard portfolio, but if you choose the right stocks, you can see much faster growth.
Should I Save or Invest?
Generally speaking, it’s a good idea to save and invest simultaneously. Saving is low-risk and allows you to have easily accessible liquid cash that can be used in case of emergencies. Investing can be a higher risk and makes it difficult to access your money but is usually more effective at building wealth over time.
If you’ve saved enough money to cover at least six months of expenses and you’re not saving for any specific goals, like college tuition or a home down payment, you can shift your strategy to favor investing over saving.
However, even if you don’t have as much money saved as you would like, it doesn’t hurt to invest a small portion of your income. Especially if you’re a young adult, putting money into a 401(k) or Roth IRA each month is a great way to save for retirement and is much lower risk than putting your money into individual stocks or startups.
Maximize Your Savings and Growth With Landmark National Bank
With several high-interest savings options, Landmark National Bank can give you a safe place to keep your money and help it grow. Or with our certificate of deposit and IRA options, you can set yourself up for long-term financial success. Find your nearest Landmark National Bank Branch and open an account today!
*Investments are not deposits, not FDIC insured or insured by any Federal Government Agency and may go down in value.