Savings vs Investing

Discussion in 'General Trading Discussion' started by gracer, May 21, 2015.

  1. gracer

    gracer Senior Investor

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    I've noticed that more people nowadays have become wiser ir maybe more of risk takers than the past generations. I for example have more friends who choose to put their money on businesses and investments rather than depositing them in their bank accounts especially with the many investment options out there. Me and my husband for one are also in that path. We almost don't have any money in the bank because we have mainly invested everything. As we all know, money just basically stagnates when left in the bank that's why we decided to take the risk. Things are doing good right now because we made sure we distributed our hard-earned money well. Although sometimes I still have this fear of getting broke because we don't have much money in the bank and our money is literally out of our hands. Do you think it's wise to put your money more on investments? How many percent of your money is supposed to stay in the bank? Is there anyone who can share his/her experience on this?
     
  2. Rainman

    Rainman Senior Investor

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    The reason one needs to diversify their investments is to reduce the risk of losing all their money. If your investments are spread around a little then the likelihood of going broke [or losing all your money] is not that high. As for how much of your cash should be left in a savings account, I think 25% percent of everything you have is a good figure.
     
  3. Fredrick Jones

    Fredrick Jones Well-Known Member

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    50+ years ago, sticking your money in something like bonds was a good bet. Inflation was at 3% a year, bonds earned 5% a year so you profited 2% a year. The problem today is most traditional ways of saving money means your investment is losing money. This is because inflation is higher then the rate of return. Governments like inflation since it is a form of a hidden tax. This is probably the best argument for a gold backed currency, it limits inflation.
     
  4. crimsonghost747

    crimsonghost747 Senior Investor

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    This is actually an easy question to answer. I'll break it up into a few different points.
    -You always need an emergency cash reserve. Anything from 2-6 months of expenses depending on your situation.
    -Well diversified investment portfolio
    -Don't invest the money you will need in the next few years. Have a lot of cash saved up for a house that you plan on buying soon? Either keep it in cash or park it in low risk bonds with mature dates before your purchase. Don't risk it by putting it in stocks and hoping to sell for a profit 6 months later.

    As long as you keep those in mind, I'm sure you will figure out a good strategy for yourself. If you have already done all the big purchases (house, car etc) then why keep a lot of cash (except for the emergency fund) lying around when you can invest it?
     
  5. gracer

    gracer Senior Investor

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    Thanks guys! It's such a relief to know that we're in the right track then. We're already done with house and car investments so my concern right now is more on the emergency funds. I'm more on the pessimistic side when it comes to this because I worry too much when it comes to future affairs. My husband doesn't mind about it because his attitude is more on investing in the "now" rather than saving for the future.
     
  6. Sunflogun

    Sunflogun Well-Known Member

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    Investing is always, but always a risk. But if we do want to make money we need to invest. Now, analyzing the market is the better way to invest, but it's never risk free.
     
  7. pwarbi

    pwarbi Senior Investor

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    The main reason that I think investing as taken over is that people aren't willing to save all their life and only withdraw a tiny bit more than what they put in, in the first place.

    Interset rates, especially in the UK have pretty much meant that any form of saving account is worthless. While investing is obviously a risk, the potential to make a lot of money is always there, so naturally people will be interested.
     
  8. crimsonghost747

    crimsonghost747 Senior Investor

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    Yes looks to me like you are on the right track. But get that emergency fund up ASAP, it really is important to have it so you don't have to liquidate your investments if something happens. You never know if the car will breaks down, one of you has to take a pause from work for medical reasons, the house will need some immediate repairs (plumbing etc). Since you have the mortgage taken care of etc. it really shouldn't be a problem to put a few hundred $ aside each month into the emergency fund.
     
  9. gracer

    gracer Senior Investor

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    You're right. It may be ironic because I've always been the kind who would want to save up more on banks rather than investing. I had more feeling of security knowing I had emergency funds in the bank if ever I needed them. Now I got married to a complete opposite of me who doesn't believe much in saving money at the bank. Well of course I trust his abilities to manage our investments because that's his chosen area after all but I'll take your advice of putting even a small portion of our earnings in the bank. I feel much more secure that way.
     
  10. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Yeah, that's a very important consideration. Money that you will need to get your hands on again in a relatively short time frame should not be put into stocks. The sooner you'll need your principal back into your hands, the more conservative you should be with that money. Your stock purchase could go up 10, 20% or more in 6 months, but it could just as easily go down by the same amount or more over such a short timeframe. So if you were needing your principal back in 6 months, you're in a fix because the stock price dropped. It's far too "iffy" to do such a thing.

    Money you invest in stocks and commodities should generally be money you won't likely need in a year or 2 or longer, or perhaps even 5-10 years or longer. Of course if you're retired and investing in high-dividend stocks to use the dividends for income while usually keeping the principal invested in those stocks for years or longer, that's a different situation.
     

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