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Is It Safer to Save My Money Rather Than Invest It In the Stock Market?

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Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Dennis Hammer is a writer and finance nerd with six years of investing experience. He writes about personal finance for Wealthsimple. Dennis also manages his own investment portfolio and has funded several businesses in the past. Dennis holds a Bachelor's degree from the University of Connecticut.

If you have money saved up, you may be wondering if it’s safer to store it in a savings account rather than invest it in the stock market. You aren’t alone. A lot of people—even those with investing experience—ask this question.

Unfortunately, there’s no clear answer. It really depends on your financial goals and your current situation. (We know that’s frustrating to hear, but it’s true.) In this article, we’ll discuss principles that will help you decide whether it’s best to save or invest your money.

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When to put money into savings

There are two good reasons to keep your money in your savings account:

First, your savings account should hold your emergency fund. This is a sum of money kept in a safe place that you can access quickly in case of a financial emergency, such as an illness, job loss, or sudden expense. Most financial experts recommend having three to six months worth of expenses kept in a savings account.

Second, saving money in a cash account is for building up for a specific purchase, such as a new roof, the down payment on a house, or any other expense you can predict. You don’t need a traditional savings account for this (because you won’t need the money immediately), but you should park the money in a stable cash equivalent account, like a very short-term bond or a money market account.

The obvious upside to an account like this is stability and liquidity—being able to access the money you deposited immediately. The downside with such cash equivalent accounts is that you’ll earn very low returns on your investments, frequently below the rate of inflation, meaning that if you held onto them long enough, you’d actually be losing money since the cost of living would outpace the investment growth.

When to put money into investments

If you intend to hold onto your money long-term, consider investing in something that will allow you to enjoy the growth of the stock market. Despite some volatility, the stock market historically rises above the rate of inflation.

Look at a chart of the Dow Jones Industrial Average’s last hundred years. Adjusted for inflation, the market has been up on average about 7% per year. You’ll never get those kinds of returns stranding your money at the bank.

How long is considered “long-term”? The rule of thumb is that more than five years constitutes a safe time horizon. If you can do without the money for five years, put it in your investments. Before you dive in, spend some time learning about investing basics, especially regarding active vs. passive investing.

Frequently Asked Questions

Investing has the potential to create higher returns than traditional savings accounts. The caveat, however, is that the chance of bigger gains also comes with risk, especially over short time periods. If you are saving for a specific goal, it’s best to keep your money in a savings account.

The amount of money you should have saved is unique to your lifestyle and your long-term financial goals. For instance, if you expect to retire early, you need to save more. However, here’s a rule of thumb that some financial experts recommend:

  • By age 30: One years salary saved

  • By age 40: Three years salary saved

  • By age 50: Six years salary saved

  • By age 60: Eight years salary saved

  • By age 67: Ten years salary saved

The 50/30/20 rule is a budgeting technique that helps you pay your bills, achieve your financial goals, and spend a little on yourself. It’s a popular technique for people who don’t enjoy budgeting. To budget this way, divide your spending into three categories: 50% of your income should go toward your needs. 30% of your income should go toward things you want. 20% of your income should serve your financial goals, like debt reduction, cash savings, and investments.

Yes. Investing is generally riskier than saving money. A savings account usually offers little or no risk, but that return is far lower than you could receive from many other investment products. Of course, this depends on your investing style and the performance of your investments.

Where you are financially at 35 depends on your financial goals and where you started, so the right path isn’t the same for everyone. That said, by age 35, financial experts recommend that you pay off any bad debt (anything with an interest rate over 7%), save a three-to-six month emergency fund, purchase appropriate insurance, and save 15-20% of your income.

Last Updated July 29, 2022

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