Deciding what to do with your money can be tricky. You might have been wondering what is the best option – should i save or invest? In this post we’ll take a look at the advantages and disadvantages to both saving and investing.
Both saving and investing are different ways of depositing your money for the chance to have more in future. When asking the question should I save or invest, there is no one simple answer to this. Everybody’s current circumstances and future plans are different.
Are you likely to need access to cash in the near future? Then it may be best to stick to cash savings. Or can you afford to put money away for the long term? Investing is probably a better option to grow your money over time. For a lot of people, a mixture of both savings and investments is a suitable option.
Below you will find comparisons between cash savings and investments to decide which one is right for you. Check out these top personal finance apps.
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Cash savings won’t fall in value like investments do so you will always know it’s current value. However cash does come with the risk of not keeping up with the rate of inflation. Inflation is the rise in prices and cost of living. This means that your cash will have less spending power in the future if you don’t earn interest or the interest rate is lower than the rate of inflation.
Savings are suitable when you may need access to cash in the near term. No matter your financial situation, you should always have an emergency fund to meet any unexpected future expenditure. Cash savings are suitable for this purpose as it is easily accessible.
More posts you might like; Different types of savings accounts explained.
- Easily accessible
- Good for short term
- Ideal for an emergency fund
- Don’t offer as much long term growth potential
- Inflation is likely to erode spending power over time
Investing is a more appropriate option over the longer term as it is more likely to give a better rate of growth than cash. Longer term is generally meant as 5+ years. So once you have set aside a cash emergency fund to cover unexpected bills, you may want to invest any extra cash you have. Investments do carry some risk when compared to cash and it is possible to lose some or all of your investment.
There are lots of options when it comes to investing including shares, bonds, cryptocurrencies, property and much more. One of the most common ways to invest is in the stock market through shares and funds. Read this post to understand more about what shares are.
A common misconception about investing is that you require a lot of money to make an investment. At one time in the past this might have been true. But thanks to micro investing apps such as Acorns, anybody can invest for their future starting with just pennies. Learn more about micro investing here; Micro Investing For a Wealthier Future.
- Likely to offer better returns than cash
- Good for the longer term
- Can invest with small sums of money
- Price volatility
- Risk of losing value
- Some investments are harder to sell quickly
It’s also important to save for retirement. A popular option is to make use of an IRA to take advantage of some of the tax benefits they offer. Self-directed IRAs allow you to invest in alternative assets for retirement. Learn more with this free self-directed IRA eBook guide.
Interested in investing? Then you may like to read this post; What Are The Different Types Of Dividends?
Conclusion – Should I Save Or Invest?
Ideally you would have a mixture of both savings and investments for maximum financial benefit. The security and easy access from cash savings gives peace of mind that you have money set aside that can be accessed quickly. You would also reap the benefits of long term capital growth potential from investing.
Having cash set aside in a savings account means you don’t have to worry about short term fluctuations in value of your investments. You can ride out these ups and downs over time.
Interested in investing? Then you may like to read these posts;
- What are the different types of dividends?
- 10 investment ideas to grow your wealth.
- Make money investing in luxury goods.
Find more information on saving, investing and making money online on our blog.