Sunday, February 17, 2019

Why You Should Save AND Invest When Planning For The Future.

February 6, 2018 by  
Filed under Business, Money, Opinion, Weekly Columns

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( Should you save or invest? The short answer is to do both. When you have enough money saved, you should invest some of it to grow your money at a faster rate. And, later, when you get a positive return on your investments, you should also save a portion of that money.

Let’s take a look at how investments and savings are both powerful wealth building strategies.

The Benefits of Investing 

There are many ways that you can invest for your future. Besides over 7,000 stocks available for public trading, you can also research currency exchange options at Treasury Vault, where you can buy precious metals or invest in more than 40 foreign currency banknotes. There is also, of course, real estate, commodities, bonds, annuities, business investments, and so on. However, while there is an abundance of choices on what to invest, you should decide whether to be a short-term or long-term investor. 

Although short-term investments, like day-trading or flipping houses, can be highly profitable if you’re good at timing the market, most of the benefits of investments come from long-term investments.

Here are three reasons why it pays to be a long-term investor:

  1. It’s not emotionally exhausting. If you are stock trading, for example, you are not likely to be anxious to sell if there is 11% rise in the market over a few days, nor will you panic if there is a 4% change in overseas markets that affect your U.S. stocks. Since you have a long-term view, market volatility isn’t going to cause you to lose sleep at night.
  2. You can rely on historical information to better predict winners. Once you’ve found a few, you can allow your investments to ride. While you won’t be able to predict every rise and fall in the market, you will have a good chance of seeing your portfolio growing in value over the years. For instance, if you’re investing in businesses, you will develop plenty of experiential knowledge on how to recognize a high-quality business after talking to the founders and looking at their books.
  3. When you find an investment that pays well, you can reinvest. If, for instance, you buy a rental home, you will be able to buy another one from your profits. After a few years, you will be able to own multiple rental homes. Besides reinvesting your profits, you’ll also develop more skills on how to get full occupancy and make less expensive mistakes on how to find the best tenants or deal with house maintenance issues.

The Benefits of Saving 

Compared to investing, savings is a slow way to grow your wealth. Nevertheless, it too has benefits. Here are three big benefits of saving.

  1.  You will build a safety net. Many things in life are not predictable, and if you have enough money in reserve, you can take care of financial emergencies. Without this money, you could be completely devastated should you experience a major setback in life. If, for example, you lose a job that you have held for many years, then you will be able to constructively find another job in your field instead of panicking and settling for a low paying job. You also have the option to go back to school to start a new professional career.
  2.  You will have the money you need to get into higher-quality investments. Often, before you can be highly successful as an investor, you may you need to invest in some formal education and training and endure some initial losses in the marketplace due to your inexperience.
  3. Finally, you will benefit from the compounding effect of your money in your savings account when it has been there for a long time. Albert Einstein referred to compound interest as one of the most powerful forces in the world.

In the final analysis, saving and investing should not be considered in isolation, as two separate, distinct activities. They work better together.  When you save to invest, your savings force you out of the necessity of just working for a living, a situation where you exchange your time and labor for an income to manage your living expenses.  Then, when you save some of some of your investment income, your money can now compound in the fullness of time without any further effort on your part. So, saving to invest and investing to save is a simple, effective two-part strategy to grow your wealth.

Staff Writer; Doug Brown

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