04 July, 2022 Financial Planning Investment Services Wealth Management

When to save and when to invest?

couple planning with advisor

We all have savings accounts, but when it comes to investing — especially large sums — it can be difficult to know where to start. 

Many people keep large sums of money in their savings accounts instead of investing it, losing substantial money in the long term. But fear not! We’re here to help you figure out how much to keep in your rainy-day fund and when (and how!) to invest the rest. Read on. 


What’s the difference between savings and investing?

Savings are great for short-term gain, but over time you’ll end up losing money due to inflation, because the interest rate on your savings account is likely going to be lower than the inflation rate. 

But there’s a solution… investing! For any money you don’t require for emergencies or day-to-day living, you could consider investing your funds for a longer term.  It’s not without its risks which should be understood, but there are more options available to grow your wealth.  


What you need to know about savings.

I teach personal finance at a local university. Inevitably, I have students who want to discuss their personal situations. They come to me with their hard-earned or inherited funds wanting to invest. But I always discuss savings first and suggest they ask these questions:

  • Do you have enough saved? — Do you have a rainy day fund? This is money put aside in case regular income is disrupted. What about an emergency fund? An emergency fund is about 3–6 months of your expenses saved up in case something happens (remember Covid?). 
  • Do you have enough for the short-term? — Will they require these funds in 3–5 years, to buy a car, or a house, to renovate their home, or go on a big trip? If so, they should save rather than invest.
  • Do you know which accounts to use to save most effectively? — Savings are tied to accounts, and some are better than others. They can use any of the account types to hold their savings, such as an RRSP / TFSA

These students have heard of friends “investing” their money into the market on something like Bitcoin or popular stocks. They usually hear about the success stories, which are often amplified by the news. But, it’s not always that way.

If this is money they are counting on for their next car in two years to get to work to make more money, they need to save that money. But, if this is money they know they will not need for some time, perhaps an investment makes more sense. 


Is investing right for you?

There is no such thing as a “one-size-fits-all” approach when it comes to investing. Investing is saving money with the expectation that it will grow in value over time. But it also starts to introduce “risk” to the equation.

  • What is investing? — The funds you invest (money you use to grow an asset) could go up…or down. Over the long term — 10 years or more — will they be up in value? Very likely. Investing is beneficial for long-term goals like retirement plans, your child’s post-secondary education, buying a house, or a big renovation as empty nesters. There are many things to consider when choosing how and what to invest in. Creating an investment strategy based on your goals, how much risk you want to take, and your personal values can make you either conservative with your investment or aggressive with it.
  • What to invest in? — There is much more to investing than just bitcoin and NFTs. There are many things to consider when choosing how and what to invest in. You can invest based on your values, goals and dreams! For example, socially responsible investing lets you focus on learning about the companies you’re investing in. Are they ESG certified? Do the companies share your values? You can learn more about SRIs in a previous blog post
  • Should you have a financial advisor? — Having someone who understands your goals, and the market will lead to beneficial financial results. It helps to work with an advisor to understand and plan your investment strategy to make the right investment for you. A trusted financial advisor will give you advice to help grow your wealth, design a financial plan that will help you reach your goals in life, and give you sound financial advice that will help you make the most of your money. 

Investing isn’t saving… it’s more than that.

Put simply, investing is an opportunity for you to grow your wealth. The interest rate on a savings account is usually low and does not change with inflation, which could cause your value to decrease over a certain period of time. On the other hand, investing in the long term would increase your value more than a savings account, even with a fluctuating market. Investing can have a higher average return rate, letting your wealth grow at a higher rate than if you only had a savings account.


How we can help…

Our job is to work with clients to figure out a good balance between savings and investing – and it’s client determined. How comfortable are you with some level of risk? There is no risk-free decision.

If you decide to save, you may actually lose money because the interest rate you get doesn’t keep up with the increases in costs. If you decide to invest, the funds could go down in value — or they could go up. As long as you don’t require the money tomorrow (because you have savings set aside), that’s not a particular worry. 

At Bick Advisors, we are focused on helping our clients create a good balance between savings and investing. Interested in learning how we can help? Reach out to a trusted advisor.