Saving usually means putting money into safe, liquid accounts like savings accounts or CDs. You earn interest, and your principal is protected. In that sense, saving is a form of investing, but it is the most cautious kind.
Investing, on the other hand, means putting money into assets like stocks, bonds, or real estate with the goal of higher returns. Unlike savings, investments carry risk because values can rise and fall, but they also give your money a better chance to grow over time.
Savings accounts generally yield less than inflation, while investments have historically offered higher growth over the long term, though never guaranteed. Most people benefit from both, using savings for short-term security and investments for long-term goals.
1. What are you saving or investing for?
If your goal is to cover emergencies or near-term expenses, saving is usually the safer choice. Savings accounts and certificates of deposit (CDs) protect your money and give you quick access when needed. Even insured savings can lose buying power to inflation if rates are lower than rising costs.
Earn as much as possible on your savings. For example, SoFi Checking is offering 4.50% APY with $300 bonus with direct deposit. (May change without notice.)
2. How soon will you need the money?
Time matters. Savings are ideal for short-term goals like vacations, car repairs, or building an emergency fund. Investments make more sense for goals five or more years away, such as retirement or helping grandchildren with college costs.
Gold has historically been a reliable investment for protecting your savings. Open a gold IRA to help shield your savings from inflation, market swings, and economic uncertainty.
3. What is your risk comfort level?
Savings accounts at U.S. banks are FDIC insured up to $250,000 per depositor, making them virtually risk-free. Investments can grow faster but fluctuate in value, which means you need to be comfortable riding out market ups and downs.
The closer you are to retirement, the more you may want to protect principal, since a big downturn early in retirement can be harder to recover from. Even conservative investments like bond funds can fluctuate in value, so it is wise to keep emergency savings in place before taking on risk.
One modern way to diversify is with real estate and venture capital. Companies like Fundrise offer investments as small as $10.
Note: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on moneytalksnews.com. All opinions are our own.
4. Do taxes play a role?
Interest from savings accounts is taxable, though usually modest. Investments in retirement accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) may offer tax advantages. HSAs in particular allow you to save for health costs while investing for growth.
Remember, early withdrawals from 401(k)s and IRAs may trigger penalties, and Required Minimum Distributions (RMDs) apply once you reach retirement age. Withdrawal rules can differ widely depending on the account or product, so always check terms before moving money.
If you have a high-deductible health plan, you should have a Health Savings Account. Check out Lively HSAs.
5. Could you benefit from professional guidance?
Balancing saving and investing is not always straightforward, especially as you approach retirement. A professional advisor can help you set priorities, manage risk, and create a plan that fits your life stage.
If you have over $150,000 in savings, consider talking to a professional financial advisor. Zoe Financial is a free service that will match you with a pro in your area.
Finding the right balance with your money
Savings are low risk but grow slowly. Investments may swing in value but offer greater potential returns. The right mix depends on your goals, time horizon, and comfort with risk.
Saving pros:
- Principal is protected (FDIC insurance up to $250,000 at banks).
- Easy access for emergencies and short-term needs.
- Low risk but low growth, often below inflation.
Investing pros:
- Higher potential returns over time.
- Can outpace inflation and protect long-term purchasing power.
- Suitable for long-term goals, but values can decline in downturns.
Many people find the “bucket” approach useful to guide their savings and investing strategy. Divide money into three buckets: one for near-term cash, one for medium-term safety, and one for long-term growth. Reviewing your mix each year helps keep your finances and your future on track.
Add a Comment