Save or invest, that’s the question? Saving money or investing money, which is wise? What am I doing right, and what is wise? This depends on your personal situation. We list the pros and cons of both so you can make a decision. Spoiler: start saving as well as investing!
Savings
Saving as we all know it is about putting the money you have extra and don’t use into a savings account. Technically, this is a form of investing. Because you receive interest on the amount of money you have in your savings account (during glory days, today not so much). You receive that interest as a reward because you make your savings available to the bank to invest * for example, in mortgages or consumer loans. So when you have a savings account, you are actually investing for a while.
*Source: Dutch banking association, Aegon
Saving is smart. We are fans of having a track pot with an amount that allows you (and possibly your family/partner) to get by for at least 3 months should you suddenly have no income. This provides peace of mind and a solid backup. Investing in creating this piggy bank is a MUST DO as far as we are concerned!
The return on your savings account? A good night’s sleep!
Advantages/disadvantages savings account
- Availability of money in savings account: direct (up to a certain amount). For exorbitant amounts, your bank may need several business days to make this money available.
- Savings account risk profile.: Low
- Interest/profit rate: Low
Investing
Instead of putting the money in a savings account, you can choose to invest your money. You can do this actively by buying stocks, ETFs, real estate, cryptos and the like yourself, or passively through an investor account with an investment profile where experts invest for you in a variety of products. This can be done at InDelta or Brand New Day, for example .
The big difference, between saving and investing is here in the risk profile. After all, while your savings are nice and “safe” in a savings account, the money you invest in your investments is a little more subject to risk. This is because your investments can become worth more over time but also less, so you can lose money.
So what you choose depends on the trade-off you make. Are you willing to take a risk with your savings and invest it so that it becomes worth more in the long run?
Psst: learn more about investing here!
Advantages/disadvantages investing
- Availability of money when invested: usually 1-3 business days, with real estate this may take a longer period.
- Investment risk profile: variable and depends on the product you choose
- Profit/loss percentage: variable and depends on the product you choose
Advantages/disadvantages investing
- Availability of money when invested: usually 1-3 business days, with real estate this may take a longer period.
- Investment risk profile: variable and depends on the product you choose
- Profit/loss percentage: variable and depends on the product you choose
Risk versus return
Investing your money and thereby taking on some risk can be more rewarding. Simply because you want to be rewarded for the risk you take or actually the extra risk you take. And you want that extra risk compensated in “money,” it’s as simple as that.
Historical facts: interest rates, the stock market and inflation
If we look at the past 100 years, we also see that when you plot the savings return against the stock market, the average return achievable in the stock market was higher than that of your savings account. This has to do with risk, of course, but also with annual inflation. Goods and services are becoming more expensive, and the interest rate on your savings account is insufficient to compensate for that.
So what is the right choice now?
So both saving and investing are both ways to invest your money. The difference is mainly in the risk you take and the return it produces. The best choice is the one you feel most comfortable with.
In any case, outside of investing, we think it’s a good idea to always keep a savings account with money you can access immediately. For unforeseen expenses and times of need. So make sure and a good piggy bank, and make sure to build wealth through investing!
When choosing between saving and investing, consider the following questions: How much risk am I willing to take? Do I need the money in the short or long term? If you don’t need the money for the next 5-10 years, then investing is an interesting option in terms of return. If you know that in 1-2 years you are going to use your savings for buying a house, for example, then it is wise to keep it safe and sound in your savings account.
Whatever you choose, do so wisely.
