Saving is definitely safer than investing, although it probably won't generate the most accumulated wealth in the long term. When you invest, your money may increase or decrease depending on daily market changes, so there is much greater risk. If your company doesn't offer a plan and you have earned income, you can create your own IRA or Roth IRA in an investment firm and invest up to the annual limit set by the IRS. If you've answered the three questions above and answered any of them in the negative, you may not be ready to start investing your money.
On the one hand, every investment has its own fees and you could owe taxes every time you make a transaction, even if you don't pay cash just to trade. A common option for beginning investors is to invest money in an exchange-traded fund (commonly known as an ETF). But if the financial objective is short-term, for example, five years or less, as is often the case with travel objectives, investing your money is usually not a good option. If you're not sure if the time has come to start investing or if you should focus on saving, the answer depends on your goals, your risk tolerance and your financial situation.
But at some point, once you've accumulated enough cash, you should start reallocating some savings to invest if you really want to maximize the amount of money you can earn, whether it's to build your wealth or plan for long-term goals, such as retirement. If you're wary of investing on your own, most investment services firms offer robo advisor services, which will assess your financial picture and suggest a combination of investments or access to professional advisors. If your time frame to reach the goal is five years or less, saving is a better strategy than investing. Experts generally recommend generating short-term savings and then investing whatever excess cash you have left.
For an interim goal that goes beyond emergency savings, Nolte suggests considering a certificate of deposit, or a series of these that you buy, since you save for individual purchases, such as a new car or a large trip. That's why, for this client, I suggested that she save a portion of her additional income for her short-term goals and a cash cushion and, at the same time, continue to invest in her long-term retirement plan. A financial planner suggests that you review a mental checklist before investing to make sure your finances are stable.
