America Saves Week Is Here. When to Save and When to Invest? 3 Things to Consider

Both savings and investing can be important ways to prepare for the future—whether that includes a major purchase or retirement—but they are very different.

• Savings involves setting money aside into accounts, some which may see slow and steady growth, such as CDs and money market accounts. [1]
• Investing involves putting money into assets that may increase in value, such as securities and commodities, and which are associated with higher risks than savings—and potentially higher rewards.[2]

Even though both practices are equally important, you may find yourself trying to decide which would be ideal depending on certain situations. Below are a few considerations you will want to look at before choosing to save or invest.

When Do You Need Access to Your Money?

How soon will you want to draw out your money? If you think you may need to utilize the funds within the year or are putting money aside for an emergency fund, then savings might be the way to go. While some savings accounts may charge a penalty to withdraw your money early, they are fairly liquid and allow you to access your money at any time. [3]

With investing, it may take longer to receive the funds, and doing so quickly could result in taking a loss. But if you plan to allow your money to grow for several years, investing may provide you with greater benefits.[4]

What Is Your Risk Tolerance?

You need to ask yourself how comfortable you would be with losing some or even all of the money you are putting aside. With savings accounts, you will know how much interest you will earn on the account, and since they are FDIC insured up to $250,000, you are unlikely to lose any money.[5]

When investing money, you will not have a guaranteed rate of return. Your investments may lose money in the short term, but you may make more money in the long-term.[6]

How Aggressively Do You Want Your Money to Grow?

As mentioned, with savings accounts you will know what earnings to expect—but they are typically minimal. Investing may allow your money to grow closer to an exponential rate as prices of the assets may make large strides in a short period of time.[7] Investing also provides you with a wide range of investment options, which—particularly if diversified enough—may provide you with the returns you need to go farther toward your chosen financial goals.[8]

Choosing whether to put your money into savings or investments will largely have to do with your specific short- and long-term needs as well as your comfort with risk. Want some help finding what will work for your needs? Contact the professionals at LPL Financial today.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

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Sources:

https://www.bankrate.com/investing/saving-vs-investing/#:~:text=Saving%20typically%20allows%20you%20to,help%20build%20long%2Dterm%20wealth.

Content Provider: WriterAccess

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