Have you ever wondered whether it’s more important to save or invest with your extra cash? The short answer is: you should do both. Saving and investing are both necessary for a secure financial future. While they, of course, have a few similarities, they both serve different functions. When done correctly, saving and investing your money will leave you feeling secure and ready for whatever the future brings. In this post, we’ll explain why it’s important to save and invest, and show you how to get started.
Saving and its benefits
Let’s talk about saving first. Stashing some cash in a secure savings account is a very safe way to keep your money. With a savings account, you don’t have to worry about financial risks like the stock market crashing.
The problem with savings, though, is that you’re earning virtually no money on the cash sitting in your account. Actually, thanks to inflation, you’re probably losing money that’s just sitting in savings for a long period of time. The minimal interest rates are not enough to keep your money growing.
Still, having some savings in your account is important. While investments generally mean that your money is not easily accessible, savings can be accessed any time on short notice. If you suddenly lose your job and need immediate cash to live on, your savings will be able to come to the rescue, since you can access it whenever you need. In fact, we recommend keeping at least three months’ worth of income in your savings account for emergencies. Six months’ worth is even better, and will protect you from living paycheck to paycheck if hard times hit.
Investing and its benefits
As soon as you have enough saved to cover immediate expenses in case of emergency, it’s probably time to start investing. Whether you have a lot of excess cash to invest each month, or only $50, you can begin investing and allowing your money to grow.
We want to be clear that investing isn’t a get-rich-quick scheme or a way to make fast cash. Investment is usually best done over a long period of time, and will allow you to prepare for the future, especially your retirement. The younger you start investing, the more your money can grow before you reach retirement and are ready to use it.
Investments, such as stocks, bonds, and real estate, are certainly more volatile than saving money in a savings account. That’s why it’s important to have patience with investments, and be willing to leave them alone, even if the market has a bad day, week, or month. In the long run, you’ll see the reward of your money increasing exponentially.
The inside scoop on investing
We’re going to be completely straightforward with you here: most of what you see on TV about investing isn’t actually about investing. Instead, it’s about trading. For example, that often means throwing money at whatever is the hot thing or the hip company right now. These are two very different mindsets.
Investing is about having the right mix of holdings, diversification, and patience to let your portfolio work for you. It won’t make you rich overnight, but it’s the best way we know to accumulate wealth over time in a consistent way, while minimizing the chances of permanent loss of capital.
For most of us, investing is really just saving a portion of your paycheck and putting it toward an account where you can generate return on the money you’ve saved. Often, the best way to do this is automatically. If you have a retirement plan, you can automatically set aside a percentage of your paycheck. If you don’t have a retirement plan, you can have a recurring payment toward your investment account, whether that’s IRA, Roth IRA, or a taxable investment account.
So, is it more important to save or invest?
You now know that both saving and investing are necessary for a secure financial future. For many, it’s easy to err too far on one side or the other. Many people think that saving a lot is very important for financial security, when in reality, too much saving will actually cause you to lose money. On the flip side, frantically investing without first saving something is dangerous. It’s important to have a healthy amount of liquid cash on hand for emergencies. So the next time you’re asked whether it’s more important to save or invest, we hope you can promptly answer, “both!”
Milestone Wealth Management can help you invest for a secure future
As an experienced partner, Milestone Wealth Management can help you establish a personalized investment strategy that best fits your needs. We help people like you construct a well-balanced investment lineup, and make recommendations based on a rigorous quantitative and qualitative evaluation process. We also conduct periodic investment reviews, to make sure that your investments are remaining consistent with your plans and objectives. Contact us today — we would love to talk to you about your investment needs, and get your money growing for you!
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.