There are many things that you can do if you have some extra money sitting around. A large portion of people, however, decide to keep money in their savings or checking account for a rainy day. There’s nothing wrong with that. Others may be more adventurous and intrigued by investing. Investing is indeed more accessible than ever, and there are investment options for anyone and literally any budget. But you might still be torn when considering the risk involved and the learning curve. Let’s take a look at which option between saving and investing would be the best for you.
Your Personality Type
The very first thing you have to consider is your personality type. If you’re naturally impulsive and impatient, forget investing right now.
First of all, you have to understand the difference between investing and trading. Trading is when you make quick in and out trades to capitalize on short term price movements. Investing is when you act as if you are an actual part-owner of a company.
This means that you have to be ready to be in it for the long haul. You have to take the time to learn how to read financial statements and candlestick charts. You also have to be ready to delve deeper into the inner working of a company and the specificities of different markets.
So, unless you have the discipline to choose and learn a strategy, apply it, and be patient enough not to pull out at the first sign of uncertainty, investing is not for you.
Your Level of Risk Tolerance
The next step is evaluating your risk tolerance. Having a low-risk tolerance doesn’t mean that you can’t invest, however. It will only change the type of investments you make.
For instance, those looking for stability might want to look at AAA bonds, government/municipal bonds, or a well managed mutual fund (for those willing to take slightly higher risks). These are all options that will allow you to invest passively at low risk.
For others, the number of options is infinite. You could go traditional and buy stocks. Or you could look at products like ETFs. Cryptocurrencies should also be on everyone’s radar, with Bitcoin breaking all-time highs at the moment.
Cryptocurrency is a bit more complicated to invest in, however, and you have to go through specialized exchanges to do so. If you want to learn how to buy Bitcoin, Paxful is a good place to start. They have a peer to peer platform that will allow you to trade Bitcoin fast, easily, and safely at great prices. They allow you to pay using virtually every method and you can buy directly from buyers without having to go through a bank or any intermediary.
Why Not Do Both?
Know that it doesn’t have to be either-or, however. If you feel like you’re somewhat limited, it’s always better to wait until you have a decent emergency fund set up. This should cover six months of living expenses at the very least.
If you have the money, you could start putting some towards a 401k and invest the rest. Money left sitting in a checking or savings account gradually loses value as interest rates are always beat by inflation. Investing might be risky, but you can expect to get 7% annual returns if you know what you’re doing or working with the right people.
So, if you are still on the fence about which way you should go, we hope we’ve been able to help. The first goal should be to build a nest egg, but investing should always be at the back of your mind if you want to build something for the future.