Savings vs investments
Highly volatile markets in the aftermath of the COVID-19 pandemic brought high uncertainty to the value of money. As the countries went into lockdown, market indices fell rapidly and the global economy took a huge jolt.
And this makes everybody wonder what they should do with their money in such volatile markets right now. Should you be considering putting more money in saving plans rather than investment instruments, or should you stick to your original plan?
Let us see what you can do.
The primary difference between savings and investing
The core difference between savings and investment is the risk that you take on. Saving is essentially depositing money at one place, most commonly a bank account, with virtually no risk.
The money stays put and earns you interest at no brilliant rate and this interest doesn’t have a high probability of standing strong in the face of the rapidly rising inflation.
Investment on the other hand is putting money in financial instruments that bring in returns. There is no dearth of such investment opportunities today. However, investment is not the most comfortable choice for everyone.
In the volatile markets that we see around us today, investment requires emotions to be kept in check. It also needs you to be aware and updated with the general ongoings of the markets. Typically investments are instruments like stocks, bonds, mutual funds, etc.
What happens when markets become unstable?
When the economy goes down, a natural reaction is to liquidate investments before the markets hit rock bottom and then consider reinvesting later or put that money into savings instead. But what to do in such volatile markets?
- Stick to the plan
- If you entered the market with a long-term plan in mind and still are miles away from your plan, it is best to not abandon your investments midway. Markets may be volatile but they are no sinking boats.
History has taught us that any economy will always rise again, even after hitting rock bottom. This is just how the economy runs. Quitting your investments halfway out of rampant panicking you will miss out on the opportunity of returns on your investment.
- Utilize the fall in the markets to diversify
- Never keep all your eggs in one basket. If you have been in the investment world for some time, I am sure you are no stranger to the benefits of having a diverse portfolio. You can use the drop in markets to expand your areas of investment at a lower cost.
Evolving as you move forward is vital to not go into losses especially. Take time to evaluate and assess your opportunities and how you can reduce risk by venturing into different investment arenas.
- Seek professional assistance
- As important as it is to stick to your plan, it is also necessary that the plan is reviewed on the basis of new developments. Seeking a professional’s help to reevaluate your risk tolerance and get their advice over your fears of savings vs investment is crucial in times like these.
Now lets us see what happens to your savings in a volatile market
The answer is, drumroll, please...Nothing. That is the painful beauty of savings. They are immune to any fluctuations in the economy. I say painful because your returns to savings are also extremely little and so is the protection against inflation.
Money loses its value if it is just sitting at a place. So as cozy and secure savings may seem, I would still advise you to stick to your investment plan along with having savings.
Savings are more liquid and hence accessible easily. Therefore, savings are essential for you to meet your short-term goals or for any emergent and unexpected expenses. But if you have some wealth that you don’t need immediately, investing your money is a great way for you to realize those goals.
Your investments should be good enough to withstand the bumps of the market. The only way to invest is to be the slow and steady tortoise. Moreover, your savings are your answer to volatile investment markets. Till the time markets rise again and your investments fetch you returns, your savings is the comfortable cushion for you to fall on if any necessities may arise.
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Frequently Asked Questions
1. Which is more important, savings or investment?
- Market volatility points to the necessity of both investment and savings going hand in hand. The difference between savings vs investment is that savings are less risk less gain and investments are higher risk, higher returns.
2. What percent savings should you invest?
- Experts suggest that every individual must invest about 10% of their total income. It can also be stretched to about 15% but in diverse instruments.
3. Why is only saving money bad?
- Focusing only on saving and not investing the money is bad because money loses its value in inflation. Moreover, interest rates on savings accounts are barely adding to the value of your money.
4. Can saving make you rich?
- Saving money has very little to do with being rich. As money loses its value if not invested or spent, savings alone cannot make an individual rich.
5. Should you invest in volatile markets?
- It is suggested to avoid starting new investments in volatile markets. However, it is also time to hold on to your existing investments and wait for the markets to be relatively stable.
6. What are some tips for investment?
- Set clear goals
- Start early
- Don't invest all your savings
- Invest for retirement
- Have a diverse portfolio
- Educate yourself
- Beware of commission and brokerage costs