What are the advantages of putting money into savings?
Saving is a good strategy if you’ll need your money in a short time. Reasons to put money into savings might be that you:
- Won’t lose money: In most cases, savings accounts are insured against loss by organizations like the Federal Deposit Insurance Corporation (FDIC). In some cases, FDIC insurance could be higher depending on the financial institution.1
- Can access your money quickly: When you need your money, you can usually withdraw it without any financial penalty up to a certain number of withdrawals per month, after which you may have to pay a fee. However, depending on the institution you bank with, this may not always be the case. Consult with your Morgan Stanley Financial Advisor to learn what options are available.
What are the risks?
Your money may not earn the highest potential yield. In fact, if your savings interest rate doesn’t keep up with the average cost of living, you lose some of your money’s buying power over time.
What financial goals call for saving rather than investing?
Consider putting money into a savings-type account if you need it within a short period of time. A typical investment market cycle is five-to-seven years, so if you need the money in less time than that, it’s a good idea to put it in a savings account. Saving is also a good strategy if you plan to completely fund the goal yourself, and don’t need to rely on your money growing significantly.
Examples of short-term savings goals include:
- Car down payment
- Vacation money
- Down payment for a home you’ll buy in seven years or fewer
- Home improvement projects
- Building an emergency fund
What financial accounts should you consider for storing savings?
Typical savings options include:
- Bank/credit unions and brokerage savings accounts
- Interest-earning checking accounts
- Money market accounts
- Certificates of Deposit (CDs)
- U.S. Treasury bills and savings bonds
What is investing?
When you invest, you expect to earn returns on your investments over time — typically more than you could earn with a savings account, over the long term.
Because investments, such as stocks, bonds and mutual funds, are connected to the financial markets, your account values may go up and down according to changes in the economy.
What are the advantages of putting money into investments?
Investing is often a smart strategy for achieving longer-term financial goals. When you don’t need your money right away, you can afford for your investments to fluctuate in value. In addition, you can:
- Give your financial goals a head start: Investing may help you earn more in returns than you could just by saving.
- Participate in global financial markets: Even if you don’t own a profitable, global business, you can share in its success. How? By buying a company’s stock or owning a mutual fund that invests in companies.
What are the risks?
Investments may climb in value when financial markets are doing well, the economy is improving, or a company’s profits are growing. However, investments can also lose money when the market declines or a company’s performance slumps. It’s possible to choose low-risk investments. However, they usually earn less over time.
What financial goals might require investing instead of saving?
Investing can be a good approach when you have longer-term financial goals or need to earn significantly more money than you could by saving it.
Consider investing for:
- Retirement
- College costs
- Down payment for a house you plan to buy in 10+ years
- Starting a business
- Leaving a financial legacy for your family
What types of financial products or assets are considered investments?
There are many different types of securities in which people invest. Common investment options include:
- Stocks
- Bonds
- Mutual funds
- Exchange-traded funds (ETFs)
- Real estate
- Real estate investment trusts (REITs)
A healthy mix of saving and investing
Most people benefit from a diversified approach to their finances that includes both saving and investing. For instance, you might put money in a savings account for your end-of-year property tax payments or next summer’s vacation. At the same time, you might invest money you’ve earmarked for a future business opportunity and for retirement.
Connect with your Morgan Stanley Financial Advisor to better understand the pros and cons of saving and investing and to choose the right type of accounts to help meet your financial goals.
