Investing has the potential to generate much higher returns than savings accounts, but that benefit involves risks, especially over shorter terms. If you're saving for a short-term goal and will need to withdraw the funds in the near future, it's probably best to leave the money in a savings account. Saving is definitely safer than investing, although it probably won't generate the most accumulated wealth in the long term. First, if you absolutely need the money by a certain date, save instead of investing it.
When you save, there's no risk of your balance declining. On the other hand, investments may decrease in value. Saving instead of investing also allows you to reach your goal on time, as long as you save the right amount each month. That's why, he says, the question of whether savings or investment should be prioritized right now yields answers that are so specific and unique to a person's financial situation.
Investment prices could fall just before you need the money, which could leave you in a financial predicament. That said, if you're not comfortable investing on your own, a robo-advisor can be a great compromise between individual investing and an expensive, full-fledged investment advisor. The benefit of a higher composite return is that you won't have to invest as much each month as you would have to save every month to reach your goal. Saving for retirement or your children's education may be better suited for investing, since achieving these long-term goals may require the additional boost of investments designed to sustain you for a longer period of time.
If investments are reduced at the time you originally planned to reach your goal, if they are delayed by a couple of years, your investments could return to a higher value. However, this year has not been so kind to investors, as the S%26P 500 plummeted by around 19% at its worst and is now down more than 13% in the year. By combining smarter spending habits and setting aside a fixed amount regularly, you might be pleasantly surprised at how quickly you can save money. First, the dollar amount you save in a savings account won't decrease over time until you make withdrawals.
Therefore, investing is an excellent option when you have a long time horizon (ideally many years) and you won't need access to money anytime soon. This material is not intended as investment advice and is not intended to suggest that any security is a suitable investment for any particular investor. As Hogan explains, investing is money that you plan to leave alone “to allow it to grow for your dreams and your future. Take the total you need to save and divide it by the number of months until you reach your goal of finding the amount you need to save each month.
However, being disciplined to save regularly generally requires paying close attention to expenses, especially discretionary spending, so that there is money available to save.