Either saving and investing bring you steady earnings, but which strategy we the amateur investors should really go for? In these coming few weeks, we are about to compare and contrast two different types of strategies, investment product categories and things to beware of.
In circumstances where our financial goals are short-term, we usually prefer saving. While speaking of a long-term focus, investing is definitely the thing we should opt for. Saving is best for solving emergencies that arise, or acting as a source of funding in your contingency plan. Your saving income certainly comes from cash, which results in a stable average annual return of 0-2%. On the other hand, investing equals holding and selling assets to earn compound interest, thus the capital and time period involved are relatively higher and longer. Investors often trade stocks, bonds, funds and real estates, and this explains why their goals happen to be more macro. These products equip themselves with a better retired life, while the average annual return ends up higher – approximately 6-10%.
I believe that smart investors like you must know that investment safeguards your future. Through placing your money in the bank, the interest it covers is way too insufficient for your retirement fund. According to the diagram below, for the first 5 years in your money management life, saving and investing bring similar benefits. However starting from the 6th year onwards, your investment would grow exponentially, hence making your return 10 times larger than that in your savings eventually. Through the power of compound interest, your foreseeable return would snowball in the long run. The earlier you start investing, the earlier you are able to receive fruitful returns.
Now you may wonder, why don’t we just invest right away rather than having to save at some time? This solely depends on the risk itself. In this fun yet challenging world of investment, high-return-investments usually come with high risks. It would be obviously risky to buy and sell stocks in a limited time, as we have to accommodate market volatilities. Although the return of holding cash is nearly zero, it prevents the risks that are brought by investing.
Now we have got ourselves familiar with the benefits of long-term investing, so we are flipping the page to get to know investment risks and types of products in the next two weeks. Stay tuned!