Most people, as they grew up, were advised by parents and other adults to save, save, save. There were even set amounts or percentages that were supposed to go into a savings account. As it turns out, this was very good advice, for the simple reason that young people often did not have access to a large amount of money.
As people go through life, they encounter circumstances that place larger amounts of money in their hands. Perhaps they have worked long hours, offered a great service or product, and accumulated money over a period of time. Whatever the specific reason, the circumstances are quite different for a young person with little money and an older person with discretionary funds. This is one simple example that can start you on the road to making an informed decision.
How to Decide
Many professionals in the financial industry begin a discussion about savings or investing by asking if the individual has goals or an idea of what the money should accomplish. Generally, if the goals are short term, even three or four years, it might be best to set the money aside by securing some form of interest-bearing account.
The key to this advice, according to many experts, is access. The funds can be earning something for the owner, and the money remains more accessible than might be the case with a long-term investment. If there is a wedding or another special occasion, for example, the money must be available in a relatively short time.
When it is time to consider the benefits of investing versus saving, think about the general timeline of your goal. If that timeline, and the need for access to the funds, stretches out to 10 years or more, it might be best to consider an investment that works best over the long term. There is little risk with a traditional savings account or similar tool. Long term investments generally have more risk, especially if there is potential for larger returns.
Informed Citizen, Meet Reliable Professional
Even if you feel well-informed in this particular area, it is always wise to talk honestly with someone who can help you make major financial decisions. This advisor will be able to provide extensive details on how inflation affects your savings or investment, and help you understand the differences in return from the two options.
In fact, inflation may be the most powerful factor acting on your money, especially if you are using a savings method rather than investment. Talk to someone who can help you protect what you have worked for or inherited. A lump sum may be just right for a long-term investment, but the purchase of stocks, for instance, can come with more risk. If the company whose stock you purchased declines to a particular point, you may not even get your original investment back.
This is obviously not the final word on the question of saving versus investing. The best step would be to talk with an expert in the financial field. Let them assist as you work toward your goals.