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Bet you $100 you’d never hear us say this. Scratch that, let’s not bet, because it’s not worth losing the money 👀 When you think about setting aside extra income, many people will try to tell you that investing it is the only way to go, and that putting it in a savings account is a waste of time. Here’s why we disagree:
Imagine a world in which you are employed, the economy is on the up and up - everything is rainbows and butterflies! You set aside $200 of your monthly income towards investing, and that money grows without you lifting a finger. You haven’t been saving, because, well why would you turn down such a high return (10%) for some stingy 0.5% or even 1% on a savings account?
Well, imagine the market turns towards a recession. All of your stocks are down (-10% from where you started), and you just got laid off. You need cash to pay the rent, but all you have is your investments… 😳
Now, you can cash out your investments to pay for your expenses, but all of the experts have always told you that “you’re young, you have time to just let it grow, as long as you don’t touch it!” Now you have to take this money out at a loss. You can always make it back, but you’ll likely reinvest when prices are higher again.
If you had set aside savings, perhaps that money would not have grown as quickly, but it also would not have disappeared. That cash sitting in that account is insured and guaranteed up to $250,000, so it’s not going anywhere.
Don’t get me wrong, investing is awesome. And actually, you probably should focus mainly on investing over savings, if you have built an emergency fund already. If you have more savings than you know what to do with, definitely start investing! Chances are though, like most Americans, you do not fall into that small group, and need to work on building some savings.
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