Jasmine Birtles
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Settle The Debate: Is Investing Better Than Saving?
Ruby Layram
8th Aug 2024
Ah, the age-old question: should you be saving or investing?
It’s one that has sparked many debates over dinner tables and in financial forums. Both saving and investing have their merits, but how do you decide which is best for you?
In this article, we break down the arguments for both investing and saving to help you decide the best path for you. So, is investing better than saving? Let’s find out!
Investing and saving are both excellent ways to make the most of your cash.
Investing involves putting your money behind assets (such as stocks and shares) that have the potential to become more valuable over time.
The best way to think of investing is to think about going to the gym. You go to the gym to improve over time, not to stay the same!
On the other hand, saving involves locking your money up in an account and gradually adding funds to it over time.
The money itself won’t necessarily become more valuable. However, putting your money in a savings account will help you to gradually accumulate your cash rather than spending it.
When you invest, the value of your initial deposit could go up without you needing to top up your funds. When you save, you will need to gradually add more money to your account to see the value grow.
The Argument for Savings Accounts
Both investing and saving have their perks, and it’s important to weigh both sides.
One easy step to boost your savings is opening a new bank account, which often comes with perks like higher interest rates and quick access to your funds. Let’s explore the benefits of putting your money into a savings account.
Stability
Savings accounts are like a trusty old friend – reliable and steady.
When you put your money in a savings account, you know it’s going to be there when you need it. There’s no worrying about market fluctuations or losing your hard-earned cash.
It’s a safe haven for your emergency fund or short-term goals.
Interest Payments
While interest rates on savings accounts aren’t what they used to be, they still offer a guaranteed return.
It might not be much, but hey, it’s better than keeping your money under the mattress!
Plus, with the magic of compound interest, even a modest rate can grow your savings over time.
Flexibility
One of the biggest perks of a savings account is its flexibility. Need cash for an unexpected car repair or an impromptu holiday? No problem!
You can easily access your funds without penalties or waiting periods. This liquidity makes savings accounts perfect for short-term needs and financial cushions.
The Argument for Investing
So, what about investing?
Here are the perks of putting your money in the stock market.
Stock Market Returns Are Higher Than Interest Rates
Historically, the stock market has delivered higher returns than savings accounts.
While it comes with risks, investing in stocks, bonds, or funds can significantly grow your wealth over time.
By investing, your making your money work for you. The value of your portfolio can grow without your intervention.
Hedge Against Inflation
Inflation is every savers’ worst nightmare! It slowly reduces the purchasing power of your money which means that money you saved 10 years ago probably won’t be worth the same anyone.
Investing can help you stay ahead of inflation.
By putting your money into assets that appreciate over time, like stocks or real estate, you can ensure your wealth keeps up with the rising cost of living.
Passive Income Through Dividends
Who doesn’t love the idea of earning money while doing nothing?
Many investments, like dividend-paying stocks, offer passive income. This means you get paid just for holding the investment. It’s like getting a bonus on top of any appreciation in the stock’s value.
Shareholder Perks
Investing can also come with some fun perks. As a shareholder, you might receive dividends, but that’s not all. Some companies offer discounts, free products, or exclusive invitations to shareholder events. It’s a little extra something that makes investing even more rewarding.
Is Investing Better Than Saving?
Unfortunately, the answer to this question isn’t clear cut!
Saving is ideal for people who can’t afford to put their money at risk and want the freedom to access their cash whenever they want! However, putting your money in a savings account won’t do much for its value.
In fact, keeping your money in a savings account long-term can actually cause the value to depreciate (hello inflation!).
On the other hand, investing comes with a higher risk and higher fees (which makes it less flexible). However, investing puts your money to work and is a great way to build wealth over time – rather than losing it!
The Importance of Doing Both!
So, is investing better than saving? The truth is, it’s not an either/or situation.
The best strategy often involves a mix of both. Having a solid savings account provides financial security and peace of mind for emergencies and short-term goals. On the other hand, investing helps grow your wealth and achieve long-term financial aspirations.
Think of it like this: your savings account is the safety net, and your investments are the trampoline that propels you higher.
By balancing both, you can enjoy the stability of savings and the growth potential of investments. It’s about finding the right balance that suits your personal financial situation and goals.
I would recommend saving 3-6 months of living expenses into a high-yield savings account before building your investment portfolio. This way, you have a bit of a cushion for those unexpected expenses!
Remember to always do your own research before putting any money away! You should consider your financial situation and speak with a financial advisor to understand what type of strategy might work best for you.
Are you interested in learning more about investing? Why not sign up to the MoneyMagpie bi-weekly Investing Newsletter? It’s free and you can unsubscribe at any time if you find it isn’t for you.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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