A prudent approach to managing your finances is essential to attain long-term financial security as well as growing an accumulation of wealth in the long run. Of course, one of the most important choices you can make is to invest or save. Each approach has different advantages. Knowing the difference will be the initial step to making educated choices about your financial situation.
Clinton Orris Senior Wealth Advisor and Senior Portfolio Manager at Becker Orr Wealth Management, part of Canaccord Genuity Wealth Management. Based situated in Winnipeg, Manitoba, he assists clients in achieving financial success by providing advice on planning for financial goals investing, asset management and investment.
As per his Canadian Wealth advisor in Canada, deciding whether to invest or save is a frequent question that he is often asked. This is especially relevant in recent months with concerns about the economic downturn, stability of banks and the potential for an equity market correction.
Orr insists that the choice of how to invest or save is largely dependent on your personal situation. Additionally, it’s crucial to remember that these aren’t the only methods — you can and should put money into each of the options.
According to the financial consultant Clinton Orr, here are the factors you need to consider:
Investment: Maximizing potential of compounded growth
The process of investing involves putting your money into different financial instruments like bonds, stocks mutual funds, real estate, or even businesses with the intention of earning returns over time.
Greater returns Contrary to savings account they have the capacity to earn more returns over the long-term. In the past, the market for stocks has shown steady growth over inflation, and has offered significant returns to investors who are patient.
“Investing is an essential tool if you want to grow your wealth over time,” Orr says. Orr. “While having a nest egg or emergency fund is very important, investing in your future is equally important.”
Asset accumulation Investments allow you to increase your wealth exponentially through compounding returns. Reinvesting capital gains and dividends can increase the amount of wealth you accumulate.
Diversification When you invest in various assets, you can diversify your risk and decrease the risk of being a victim of market volatility. Diversification may help reduce the effects of a poor performance on one investment by balancing the losses by gains from other investments.
Protection against inflation: Investing provides an opportunity to fight the degrading effects of inflation. In addition to limiting inflation, investments can preserve your purchasing power and help preserve an increase in the worth of your money.
It’s also crucial to be aware of the risk that could be associated with investing.
“Volatility and market fluctuations can happen,” Orr says. Orr. “The amount of value you get from your investments could drop at times and, sometimes, dramatically, over the course of a short time. Risk exposure could make some investors anxious.”
Saving: the base for financial stability
“Savings, realistically, is setting money aside in low-risk, accessible accounts such as a savings account or in cash,” Orr says. Orr. “There’s a lot of great reasons why you should consider saving your money.”
Liquidity and safety:Typically, savings accounts are backed by the government, which provides a degree of security to your money. They are readily available, making them a great option for emergencies costs or financial obligations that arise unexpectedly.
StabilitySaving can be a prudent method that can help you keep your financial stability. It helps you prepare in case of unforeseen events and provides an insurance policy during times of financial uncertainness.
Goals for the short-term: Saving is ideal for financial goals that are short-term like making a down payment to purchase buying cars or arranging a relaxing vacation. Through a consistent savings strategy you can reach these goals while not exposing your money to market fluctuations.
The peace of mind Saving a substantial amount can give you peace of mind as well as ease the financial strain. Being aware of having an emergency fund to draw to in times of crisis will boost your overall wellbeing.
“When it comes to deciding whether to invest or save your money it’s important to consider your financial goals, time horizon, risk tolerance, and overall state of your finances,” the article explains Canadian financial consultant Clinton Orr.
“Investing can provide more returns and wealth accumulation in the long-term however, it is also accompanied by some risk. However savings can offer security and liquidity, however its potential for growth is very limited. In the ideal scenario, a prudent approach to saving is generally recommended. You should consult an experienced financial advisor to determine which strategy is right for you.”