If you are trying to build up your wealth, then you are probably considering both saving and investing. There are benefits and drawbacks to both of these methods, and you should understand what those are before you start putting your money anywhere.
Saving Accounts- Pros and Cons
A savings account can be more than just the basic long term or short term savings account most banks offer. These basic accounts simply grow interest over time based on how much you deposited. Each bank offers a different rate, so you want to look into what is available and find the highest possible rate to get the best return.
Savings accounts can also be accounts where the money is put into certificates of deposit or insured money market accounts. The upside to all these means of saving your money is that they are very secure. There is little to no chance that you will lose the money you put into a savings account. Most of the time it is insured, even if the bank were to go out of business or the currency were to lose some value. That’s why the U.S offers FDIC insurance.
These accounts are also very liquid, which means that you can get your money back fast, usually within hours. Some banks offer easy to access accounts for savers specifically for this need.
The main disadvantage of using a savings account to grow your wealth is that the rate of growth is usually very slow. It is often fixed, meaning you will know how much growth to expect year over year, but those rates are usually quite low in comparison to investments.
Investing- Pros and Cons
Investing can be done through any number of means. You can invest in stocks, in bonds, in property, in business and more. The main advantage to this kind of wealth accumulation method is that your chance for a great result is much higher. Incredible gains are the goal of every investor, and those who know the markets they are investing in know where to expect such gains.
That chance of making it big with an investment also means there is a possibility for significant losses. There is a lot of risk involved in investing, and anyone who has been doing it for some time has probably lost quite a bit of money.
Investments are far less predictable than savings accounts. There is no fixed rate and no insurance. Once you lose your money, your only hope of recouping it quickly is to invest it once more. It can be a vicious cycle, but it also offers many opportunities for success.
The best and soundest investments often take years to actually come through. You may have to cultivate and grow a portfolio or an investment before it pays off. Investing in a rising celebrity or in a collection of antiques can earn you big money later, but it may take many years to actually get that investment to a point where it becomes profitable.
For anyone looking to grow their wealth, it is recommended that they use both savings accounts and investments. Make the savings the foundation of the wealth, growing your money steadily to cover any losses that may be made while investing.
Photo courtesy of: LJ-