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Investing vs: Savings
Posted on 10/2/24 at 9:08 am
Posted on 10/2/24 at 9:08 am
Many of the standard savings accounts are earning 4.25-5% interest. Obviously, you can earn more while investing but you do not have immediate access to those funds without a penalty.
No immediate access can be a good or bad thing. How much do you keep in savings versus investing?
No immediate access can be a good or bad thing. How much do you keep in savings versus investing?
13
Posted on 10/2/24 at 9:17 am to HeartAttackTiger
If you potentially need the money at any point in the near future, it should be cash in savings.
If you are trying to "save" on a longer term for something, investing would be more appropriate...but when it gets closer to the time you need the money, switch it to cash.
The problem with treating every "savings" as investing (in the market) is what is the market tanks 25% one year? You were counting on something that was $50k the previous year is now only $37,500 and you need that money now. This is why you dont invest money you need for the short term or near future; keep that in cash even if HYSA go to crap interest rates again.
Things like an emergency fund should always be in cash IMO.
Short term savings should also be in cash - saving for vacation in 12 mo or less, etc...
Long term savings - ex. saving for my next car, saving for house down payment. Stuff that might take multiple years; Can invest that but again would switch to cash closer to when you would need it.
If you are trying to "save" on a longer term for something, investing would be more appropriate...but when it gets closer to the time you need the money, switch it to cash.
The problem with treating every "savings" as investing (in the market) is what is the market tanks 25% one year? You were counting on something that was $50k the previous year is now only $37,500 and you need that money now. This is why you dont invest money you need for the short term or near future; keep that in cash even if HYSA go to crap interest rates again.
Things like an emergency fund should always be in cash IMO.
Short term savings should also be in cash - saving for vacation in 12 mo or less, etc...
Long term savings - ex. saving for my next car, saving for house down payment. Stuff that might take multiple years; Can invest that but again would switch to cash closer to when you would need it.
This post was edited on 10/2/24 at 9:19 am
Posted on 10/2/24 at 9:21 am to HeartAttackTiger
There is not a penalty related to accessing most investments. There are penalties for pulling funds out earlier than intended of some retirement type accounts and some annuities, but this does not apply to most types of investments. What are you referring to?
Posted on 10/2/24 at 9:46 am to HeartAttackTiger
quote:
Obviously, you can earn more while investing but you do not have immediate access to those funds without a penalty.
Investing isn’t limited to 401ks and IRAs
Posted on 10/2/24 at 10:18 am to HeartAttackTiger
What do you consider immediate? As in right now this second? Then yes, checking/savings is the way to go. If you mean within a few days, an individual brokerage for investments is the way to go. You can sell stock in a brokerage account and have the funds in hand within a few days.
Posted on 10/2/24 at 10:24 am to thunderbird1100
This is an over simplification. All short term money does not need to be in cash. There are numerous factors that determine how much needs to be in cash.
Posted on 10/2/24 at 10:32 am to ColoradoAg03
quote:
What do you consider immediate? As in right now this second? Then yes, checking/savings is the way to go. If you mean within a few days, an individual brokerage for investments is the way to go
Depends on your risk tolerance.
Posted on 10/2/24 at 10:34 am to HeartAttackTiger
As the rate cuts continue those 4.5% interest are going to come back heavily.
Keep money you might need within a year in savings. Put enough money for your retirement in retirement accounts. For everything in between, use a brokerage account.
Keep money you might need within a year in savings. Put enough money for your retirement in retirement accounts. For everything in between, use a brokerage account.
Posted on 10/2/24 at 11:36 am to Thundercles
AmEx went to 4.1% today.
Posted on 10/2/24 at 11:39 am to Thundercles
quote:Yeah, the rates paid by institutions are coming down much quicker than they went up.
As the rate cuts continue those 4.5% interest are going to come back heavily.
Keep money you might need within a year in savings. Put enough money for your retirement in retirement accounts. For everything in between, use a brokerage account.
Posted on 10/2/24 at 6:33 pm to HeartAttackTiger
I bank with the same company that use as my brokerage. Their interest on my savings account sucks . Just keep a small amount in the saving and keep big chunk in Cash in my Brokerage account. The Money market sweep class on that cash sitting in my brokerage pays me monthly much more than 4.25% monthly.
This post was edited on 10/2/24 at 6:34 pm
Posted on 10/2/24 at 10:18 pm to HeartAttackTiger
quote:
No immediate access can be a good or bad thing.
Do you have a credit card? If so, you have immediate access to spending your savings
Posted on 10/2/24 at 10:40 pm to HeartAttackTiger
Saving vs Investing is a risk thing not a timing thing.
Any money you have in a taxable brokerage you can have in your checking in a few days penalty free. You can float whatever expense it is on your credit card in the mean time. So essentially you have immediate access to it.
The only problem with it is a huge crash in the stock market and a big emergency at the same time.
I probably need to leave more in savings but I pretty much invest everything besides a few thousand.
Any money you have in a taxable brokerage you can have in your checking in a few days penalty free. You can float whatever expense it is on your credit card in the mean time. So essentially you have immediate access to it.
The only problem with it is a huge crash in the stock market and a big emergency at the same time.
I probably need to leave more in savings but I pretty much invest everything besides a few thousand.
This post was edited on 10/2/24 at 10:41 pm
Posted on 10/3/24 at 4:37 am to HeartAttackTiger
Probably frowned upon but I keep a little less in an emergency fund because I know that IF I absolutely needed to I could pull my Roth IRA contributions.
I should never have to do that, but I don’t see the purpose of a giant savings account if that is an option
I should never have to do that, but I don’t see the purpose of a giant savings account if that is an option
Posted on 10/3/24 at 6:45 am to SulphursFinest
quote:
Probably frowned upon but I keep a little less in an emergency fund because I know that IF I absolutely needed to I could pull my Roth IRA contributions.
I should never have to do that, but I don’t see the purpose of a giant savings account if that is an option
To each his own.
I keep a pretty low emergency fund because I have a military pension.
Posted on 10/3/24 at 11:43 am to Florida_Man1981
Between savings and investments, the way to differentiate them is to think of savings as a tool to preserve wealth and investments as a tool to build wealth. You will build more wealth if you continue investing routinely for as much of your life as possible. You will not build wealth by holding money in savings.
You do need some savings, even if it is just a minimum balance in your checking account, but you really only need savings for things you know you are going to have to spend money on in the short term, say less than two years.
If you invest long term, your investments have a chance to double and sometimes triple over a decade, and sometimes even better. Even if they correct by 25%, if you have to draw on them, there might be some shares that are still double the price you paid for them. It's not the end of the world to sell them, but if you have shares that are less than you paid, you could sell them at a loss and use the loss to avoid some taxes. You can't do that with savings. Plus, after you have built enough wealth in investments, you can use distributions such as dividends and capital gains to keep your savings topped off, or maybe to offset inflation.
In my experience, when you have a major expense such as a roof or an AC, you have time to deal with those things, and you can be flexible on how you pay for them. You won't go to hell for financing those things and using market fluctuations to find an opportunity to pay it off.
However, I have never been married and I don't have kids. Others might need more savings than I do to keep the peace in their house. I just think that routine investing, even if it is a small amount, should take a very high priority. If I had understood that when I was younger I would have a lot more wealth now.
You do need some savings, even if it is just a minimum balance in your checking account, but you really only need savings for things you know you are going to have to spend money on in the short term, say less than two years.
If you invest long term, your investments have a chance to double and sometimes triple over a decade, and sometimes even better. Even if they correct by 25%, if you have to draw on them, there might be some shares that are still double the price you paid for them. It's not the end of the world to sell them, but if you have shares that are less than you paid, you could sell them at a loss and use the loss to avoid some taxes. You can't do that with savings. Plus, after you have built enough wealth in investments, you can use distributions such as dividends and capital gains to keep your savings topped off, or maybe to offset inflation.
In my experience, when you have a major expense such as a roof or an AC, you have time to deal with those things, and you can be flexible on how you pay for them. You won't go to hell for financing those things and using market fluctuations to find an opportunity to pay it off.
However, I have never been married and I don't have kids. Others might need more savings than I do to keep the peace in their house. I just think that routine investing, even if it is a small amount, should take a very high priority. If I had understood that when I was younger I would have a lot more wealth now.
Posted on 10/3/24 at 12:50 pm to HeartAttackTiger
quote:What do you mean? I have zero penalty to withdraw my investments (not talking about 401k, Roth, HSA)
Obviously, you can earn more while investing but you do not have immediate access to those funds without a penalty.
Posted on 10/3/24 at 3:33 pm to HeartAttackTiger
70% of my savings is in stocks because I'm earning considerably more there than in a savings account. Just pick "safe" blue chip stocks and chances are you'll be fine.
Life aint life if there isn't any risk!
Life aint life if there isn't any risk!
Posted on 10/4/24 at 11:41 am to TigerTatorTots
quote:
I have zero penalty to withdraw my investments (not talking about 401k, Roth, HSA)
Although not a penalty, but got to keep short term gains in mind as well when dealing with investments.
Posted on 10/6/24 at 10:09 am to CharlesUFarley
Pretty spot on. Good post.
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