55% of Americans report having invested in the stock market in 2019, stats from Gallup reveal. If you’re fortunate enough to have some extra money, you may be wondering if it’s best to save or invest those funds.
While saving and investing are both beneficial strategies, the smartest move for you depends on your current financial situation, savings and goals.
Prioritize emergency savings
It’s wise to focus on saving money before you start investing. Building an emergency savings fund that covers roughly six months of living expenses should be your first priority.
You’ll therefore have a safety net in case you suddenly lose your job or get hit with emergency expenses (like home repairs or medical bills). It’s useful to research the best savings accounts of 2019 (best high-yield & sign up bonus) to find the ones that currently offer the most generous benefits. A high-yield account will ensure you benefit from a decent interest rate. Additionally, look for accounts offering a sign-up bonus to get some easy extra cash.
Boost your wealth with investing
Once you have your emergency savings fund, you’re ready to start investing. While investing in the stock market obviously comes with risks, you’ll be able to get returns of about 7% or more after inflation. In comparison, savings accounts come with an average percentage yield of 0.08% per year.
Thanks to the rate of inflation (3% per year on average), your money ends up losing purchasing power over time in low-yield accounts. Investing is therefore a faster way of boosting your wealth — as long as you’re prepared to be patient and embrace the stock market’s ups and downs.
If it makes sense for your situation, you can save and invest at the same time. For example, if your employer offers a 401(k), you can contribute some money to this while also growing your savings account.
You’ll therefore benefit from a tax break, with your employer potentially matching your contributions. Alternatively, if you’ve maxed that out, consider opening a non-retirement investment account. Start with small investments and increase your contributions as you become more confident.
Ultimately, the stock market is extremely volatile in the short-term, and it’s important to think of investing as a long-term strategy (unlike savings which you can access quickly). Investing is certainly lucrative, but you need to budget until you’re able to eventually benefit from that money.