Investing Versus Saving: Which Should You Do, When, and How?
Plus, find out why these two practices makes a big difference in your overall financial health.
当你的时候，一点计划可以走很长的路getting your finances in order. And while saving money and investing it can helpensure a better financial future, there are times when it's smarter to save instead of invest, and vice versa. "Savings is best for reaching short-term goals, such asbuilding an emergency fund要么planning an upcoming vacation, and exposes you to minimal risk, if any," saysScott Cohen, a financial advisor atNorthwestern Mutual. "Investing is better for long-term goals, such assaving for retirement, college, or your future home, because they offer more risk but can provide a greater chance at reward down the line."
Interested in improving your financial health but not sure whetherinvesting要么savingis right for you? We asked a handful of financial advisors to help us break down the differences between the two, as well as the best ways to do each, so you can manage your money.
When to Build Your Savings Account
According to夏奈尔凯瑟琳, a banking expert atNerdWallet, a savings account is a vital tool in your financial arsenal. "It's a place to keep money as liquid cash that you need to access quickly or for short- to medium-term goals, such as building an emergency fund,saving for a housing down payment, or funding a special vacation," she explains. "Many banks allow their customers to create sub-accounts, which can be helpful forseparating savings based on different goals. The sooner you start building up your savings, the sooner you can have money set aside for life's important—and sometimes unexpected—moments."
Building up your savings account can be as simple as存放一定数量的钱each month. "Automate your savings so a portion of your paycheck goes directly into your savings account," advises Cohen. "Try to increase what you contribute to your savings account when your pay increases."
Bessette saysthe type of savings accountyou open can help you bulk up your balance, too. "Aim for a high-yield online savings account with no monthly fees," she explains. "These accounts offer rates much higher than the 0.05-percent national average interest rate and can make a sizable difference in terms of earnings."
When to Invest Your Money
While investments such as stocks, bonds, and real estate are much more risky than simply saving your money, Cohen says they provide the opportunity to增加你的钱的价值over time. "When you invest, you can grow your money at a faster rate than traditional savings," he explains. "If you have a solid financial foundation in place, or if you have inherited some money or have extra money saved up, you can likely afford to choose some investment vehicles with higher risk."
However, Cohen says it's also important to note that unlike a savings account, investments are subject to market fluctuations, so you have the potential to lose money, too. "In general, the more risk involved with the investment, the more potential reward in the long run," he says.
When determininghow to invest your money, Shannon McLay, founder ofThe Financial Gym, says exchange-traded funds (ETF) and mutual funds are a great place to start. "ETFs are traded on exchanges, such as theS&P 500当您投资一个时，您可以在没有基金经理的情况下自己购买和交易它，“她解释道。另一方面，”一个共同基金通常由经纪人管理，如先锋, and the price can vary depending on when you purchase it."
To maximize your investments andreduce your chances of losing money, Cohen recommends talking with a financial advisor about all of your options before investing. "They can walk you through your risk tolerance (how much risk you are willing to take with investments), time frame, and what routes to take when investing," he explains. "Discussing stocks, bonds, mutual funds, 401k match plans, and other investment opportunities can help you decide how to put a portfolio together."
Saving or Investing: Which Should You Do?
As for which isthe smarter money move to make, saving or investing, Bessette says it all comes down to your current financial situation. "Investing and saving are both highly valuable means of achieving financial goals," she explains. "The place you decide to put your money depends on your timeline, yourrisk tolerance, and what kind of return you hope to get on your cash."