Should one save cash or invest in the stock markets? This is an essential question that I will be discussing. Probably you have been asking the same question before, and like many people, you are not very sure about what to do. I hope this article will be helpful. Let's get into it right away.
Talking About Saving Cash And Money
Many often struggle to save a decent amount of cash over the years because of household expenses. Nevertheless, saving can allow one to put away a lot of money in a safe for twenty or more years.
Think of saving 30 dollars each month for twenty years. That is equal to $30 x 12 x 20 = $7200 without talking about cumulative interest added (interest that earns interest on itself over the years).
Well I think one can do something with that money. Imagine saving $50 or $70, $100, $1000 or more per month.
Usually, most people can hardly save $5000 a year. As you can see, cash is a valuable commodity, and it is always nice to have some stuck away. Every person understands saving, and tries it few times may be without success. My opinion is that one must save. It does not matter how much one is earning one must save even if it is $10 per month.
Typically, one should not spend more than one third of a salary on the rent. Something one must check and rectify. So in general, one is saving and earning interest year by year. It is straightforward. Right?
Should One Save All Times?
May be not. Why? Well because when it comes to money saved wisely, one is saving in a season when the interest rate is worth it.
Really, those who are saving wisely may not save in a negative interest rate environment. A negative interest means the bank will charge one instead paying one interest year after year.
So there are times when one may decide to do something else with the fund destined for saving. Note also that it also wise in few cases to pay those negative interest charges when one is talking about millions of dollars.
Does one want to risk losing those funds to burglars by hiding them under the bed or in a safe in one's property? It makes sense in those circumstances to pay the negative interest charges if one sees them as insurance or security fees to protect large sums of cash.
On the other hand, those with an insignificant amount of money would avoid those negative interest charges, and opt to do something better with those saving cash.
Saving wisely is also about finding better interest rates that will boost the savings instead of earning penny interest rates.
Indeed, fund managers will not hesitate to move their clients' funds into better interest rate accounts around the world.
Talking About Investing
One that buys an asset in view to earn a capital gain or dividend is an investor.
If one buys hundred shares of Ford stock at $4 in 2020; and it rose within one year to $12, one has effectively triple the initial capital. The capital gain is the current value of the asset minus the initial investment. That is ($12 x 100) - ($4 x 100) = $800 provided that one is smart enough to use a zero commission broker, and also tax free investment account (ISA in UK).
Otherwise, one must also deduct the commissions and taxes.
Notice that there is no saving account that pays 200% interest.
The example above illustrates a successful asset growth investment without dividends. A successful medium to long term growth investment in a healthy economic environment can sometimes multiply an initial capital by ten. Think of the early long term investors in Facebook and Google stocks and many others.
All investments carry risks. One can even lose the initial capital. To achieve successful capital gains, one must learn and master how, when and what to invest. To put it bluntly: it ain't for gamblers or crazy investors. Though a bit of luck does help, luck often only helps the intelligent investors.
Alright, do not be discouraged because what I have just said. Keep learning please.
An investor that takes on risks must be rewarded by a capital gain or both capital gain and dividends. I do not know about you, but I would rather had both. Wouldn't you or why not?
To avoid a long discussion, note that a smart investment in a healthy economic environment is far better than cash saving provided that one is controlling the risks.
A successful combination of asset growth and dividends has produced hundreds of millionaires around the world. That has nothing in common with winning a lottery jackpot. All one needs to do is to grow into one an intelligent investor.
Please allow me to say it one more time. "An investor that is not earning dividends is leaving so much money on the table."
Saving Compared To Investing
Saving in general is straightforward and safer in a hawkish interest policy environment. It is suitable to those who are risk averse, conservative or hate losing.
One can safely save a substantial amount of money in a medium to long term. One can save for specific purposes, and opt out of unnecessary loans or credit cards deals.
Savings help one to prepare oneself for a better financial future. Taking into consideration that the financial markets can swing very low any time without warnings, it is wise that an intelligent investor also holds saving accounts or cash. Hopefully, the inflation will not negate the cash's purchasing power.
As they say, greed is good, but I say an intelligent greed that controls risks is very good.
May be one is thinking that investing is for the greedy beasts, and one is always holding on to cash or savings even in a high inflationary economy, one should investigate what a successful investment can do to one too. Whether, one is saving or investing there are always risks.
Contrary to the common belief, there are risks to saving cash too. For example, hackers can empty your savings, thieves can break in, and banks can go bankrupt ( how much is the bank guaranteeing?).
High inflation can also erode your savings' purchasing power unless one is also holding a bit of gold.
So savings even though are safer than investing are still exposed to risks.
Obviously, if one is not yet an intelligent investor, one can either learn how to invest like a pro or ask for a safe investing advice.
Truly, an investment can make one richer even though one can still lose all the initial investment capital.
The general rule about investing is to never invest more than 5% of one's net worth. Also, never invest more than 25% of one's investment fund into one sector. It is good to diversify like an intelligent investor instead of hopeful gambler.
Am talking too much today? Sorry, I like to talk. I hope one does not mind that today.
All in all, one that wants to invest must learn to invest. Just keep learning. Learn from past mistakes, and make it your first goal to always control the risk instead of just becoming a lucky investor.
A smart investor will surely beat a smart saver in the medium to long term.
Though, one can safely save a substantial amount of money over the years, an intelligent investor can pile up an unbelievable wealth at the same time.
Both savers and investors have their own risks but savers can safely keep their savings in an average inflation rate economy without worrying too much to lose all their cash.
Contrary to savers, an investor can lose his or her investment funds if he or she is not competent, intelligent and puts in place defensive measures.
Now, I know what you are thinking. Just tell me if one should invest or save? No worries.
An investor must save some of the gains or hold some of his assets in cash and gold. A saver with a large sum of money could do better is he or she may be uses 5% of those cash to invest like an intelligent investor.
In the end, it all comes down to both. Save and invest wisely and keep learning.
Please remember, it is not about having this and that, but to be or not to be. Make the goal to become a better saver and investor your first goal. Keep learning non stop, improving, researching, asking relevant questions and giving it more time.
Alright, friends and foes, this is the end of this discussion about saving versus investing. I hope it has been helpful to you.
If that is the case, please bookmark and share this article today. Please, remember to say few nice words about us in various investing and finance forums. I will really appreciate that.
If you have any relevant questions or comments please use the comments section at 24stocktrader YouTube channel. In due course I will answer your questions or post an educational video.
I wish you the very best. Happy Saving And Investing To All
This article is written by G Beaulieu Founder Of Stochastic-macd.com website.