INVESTING VS SAVING
Posted on: 30 Sep, 2022
INVESTING VS SAVING
The choice of whether to save or invest is usually a hard choice to make especially when your sources of income are very much limited and does not compliment your needs. However, the importance of investing rather than saving cannot be overly emphasized as it offers you a more reliable option of long term sustainance.
Here are some of the reasons why you should invest rather than save.
If you stick to cash you’ll lose money to inflation
If you save up over many years, you won’t earn enough interest to cover the increasing cost of living. When your cash fails to keep up with inflation, it loses relative value and you’ll have less buying power.
In fact, you’ll have to add more to your cash balances to make up for the lost value vs inflation, so holding too much cash is costly.
Investments, on the other hand, l can be index-linked to inflation or have a reasonable relationship to inflation where it outstrips it during most years – preventing your assets from declining in value as the years roll on.
Investments can give you a liveable income
Some investments can give you 4-6% in income, which is high enough to live off once you have a large enough portfolio balance. In contrast, savings pay little in interest and you cannot live off that income stream; it’s just too small.
Depending on the investment, it can grow and still pay out a solid income, such as property investments, where your income comes from the net yield after operating expenses and fees.
This gives you the best of both worlds. And when you have enough liveable income you become financially free, whether you choose to retire or continue growing your wealth while still working.
The Value of Your ROI Grows Overtime
As an owner, you benefit from the growth in the value of your investments. You can invest in different value-based opportunities around the world while using financial hedging advice to protect from a currency depreciation.
If you invest over 10-20 years, the ‘magic’ of compounding becomes a significant factor in building your investment capital. You can end up with double or more compared to what you originally invested if you begin early enough.
Your savings alone won’t be enough to retire
If your income isn’t high, you need your savings to grow substantially to save more than you require to retire.The interest from cash savings loses money to inflation, so that won’t work. Instead, you need to move your savings investment in order to multiple their value. If you don’t, you may never be able to afford to retire. So if you stick with cash because you’re scared of the stock market, you could just be sabotaging yourself.
Saving is important. It buys time when things go wrong, gives you a buffer for any unexpected expenses and has a useful sleep-at-night factor that’s not to be discounted.
However, you can’t usually hang your entire financial future on your savings. If you have enough freely available cash, it’s much wiser to invest it with a long term eye on your future. Your future you will thank you for it!
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