Saving Vs Investing – What Should You Be Aware Of?

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Written By Adrian Cruce

 

 

 

 

 

There is this question that always keeps popping up: should I invest or save money? The question is tough to answer because of the fact that there are situations in which it is better to save and cases in which it is a lot better to invest. Everything boils down to how much risk you are willing to take but there are also other aspects that we have to take into account. For instance, if you have a mortgage, it is better to pay it off or invest money so that you can eventually pay it faster when compared to just saving money since this brings no real benefits.

Let us take a look at both options so that we can see what counts the most when thinking about saving vs investing. You will then be able to make a much more informed decision.

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By Federal government ([1] (cropped)) [Public domain], via Wikimedia Commons

Facts To Remember About Savings

Saving is well suited for short term goals (under 3 years). For instance, you save money to go on a vacation or to have cash available in the event an emergency appears. The cash that you have is really easy to access whenever it is necessary. However, you may be faced with limitations if you have savings account so make sure that you discuss this with your bank.

The biggest advantage of saving money is that risk is minimal. The money that is put into saving accounts are insured and there are even situations in which risk is zero. You earn interest with the savings but they are usually a lot lower than what you could make through investments. To put it simple, saving is perfect for people that do not want to take chances.

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By Federal government ([1] (cropped)) [Public domain], via Wikimedia Commons

Facts To Remember About Investing

Investing is attractive because it helps you achieve a long term goal. This includes anything that is over 4 years from this point on. For instance, you can do this in order to have more money and be able to pay for the college education of your child. The problem is that whenever you invest money, you cannot put your hands on it whenever you want to. There are strict rules that have to be followed and you should only invest with money that you can afford to miss for that period of time.

It should be mentioned that investments always involve risk. It is possible to lose a part of the money so risk management is always necessary. The really good news is that you have a really high profit potential. Your investment can easily appreciate as time passes and net worth is also increased as you own higher value assets. Profit is made whenever selling at a price that is higher than what you bought for.

Should You Save Or Invest?

The final decision is obviously up to you but you do need to understand the fact that using both methods is usually a great way to go. You can save part of the money so that you always have cash available in the event of an emergency and invest the rest so that you have more money in the future.