Does one take precedence over the other?
It’s the age-old question to which everyone wants an answer: Is saving over time or investing your money more likely to make you the big bucks?
While both strategically saving and investing will make you money, investing is more likely to up your financial game over the long term, and is best for helping you reach those faraway goals, such as saving for a wedding or a child’s college education. Savings accounts work better for goals in the near future, such as going on vacation or making a large purchase.
While investing over the long term certainly has its advantages, it can pose many more risks than saving accounts do. With funds ensured by the federal government, money up to $250,000 would be restored if anything happened to your financial institution with a savings account. In addition, savings are ready at hand in the event you need money quickly — a possibility investing doesn’t always provide.
Investing, however, offers the potential for major profit and a higher return than a regular savings account. Over time, your investment may appreciate, which will increase your net worth. So if you sell what you invested in for a higher price, you make a profit. With a savings account, you can earn interest, but that’s generally much less than an investment profit.
Of course, when you invest money, you risk losing some or all of it. The key with investing is focusing on the things in your control.
“The only thing that you can control is the amount of capital you invest. Even during periods of low market returns, the frequent addition of investment capital can have a lasting effect,” says Director of Investor Education Bob Stammers of the CFA Institute. “Consistently adding capital to your portfolio, [when combined with] the long-term returns earned on that capital, is an excellent way to steadily move toward your overall financial goals.”
Even if you’re investing your money, it’s still important to be good at saving as well.
“An average saver will do better than a great investor who doesn’t save,” says CFP Professional and Principal David A. Schneider at Schneider Wealth Strategies in New York City.
In addition, whether you save or invest, it’s best to start sooner rather than later.
“The sooner you start saving and investing, the easier it is on your budget,” says President Carrie Schwab-Pomerantz of the Charles Schwab Foundation. “The sooner you start, the less you have to save because you have time on your side.”
“Every $1,000 saved in your mid-20s grows to over $10,000 at retirement, assuming 6 percent growth every year. But waiting until your mid-30s means that same $1,000 will only grow to $6,000,” explains Chartered Financial Analyst and CEO Shane Leonard of Stockflare. Think of it this way: Investing a mere dollar at age 25 could be more than five times as valuable as doing so at age 45.
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