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America Saves Week: February 20-24

America Saves Week is an annual call to action for Americans to commit to saving successfully. Celebrated February 20-24, it encourages individuals to do a financial check-in that allows them to get a clear view of their finances, set savings goals, and create a plan to achieve them.

Saving vs. Investing

When it comes to your financial strategy saving and investing serve two completely different roles but work hand-in-hand to help you achieve a comfortable financial future. However, it’s important to understand the difference as you begin to build your wealth.  Both play an important role in any financial plan.

Let’s break it down.

Savings are funds you tuck away for short-term goals.  Typical places to place your short-term funds might be a checking or savings account at your local bank or credit union, or a certificate of deposit.  These types of accounts pay a small amount of interest, the funds are liquid and readily available to you.  Savings involves minimal risk and most funds are protected by FDIC up to $250,000 if invested in an FDIC-insured bank.

Investing is usually for long-term goals such as paying for a child’s education or planning for retirement.  Common investment assets include stocks, mutual funds, ETFs, bonds, and annuities.  Investing does not guarantee a return and always involves risk.  It is possible to lose some, or all of the funds invested.  Investments typically have the potential for higher returns than savings accounts.  Additionally, when you invest your money, it can take a few more days to access your money compared to a savings account.

If you’re not sure whether it’s time for you to start investing, or if you should focus on saving, the answer depends on your goals, risk tolerance, and financial situation.

Should you invest now or wait?

You may want to consider starting your investment strategy after you’ve:

  • Built your emergency savings. Savings should come first. Before investing, try to make sure you have a separate low-risk, low-return account you can use to cover expenses during an unforeseen event — typically at least three to six months’ worth of living expenses.
  • Paid off high-interest debt. By paying off high-interest debt in full, you’ll reduce the total amount you owe faster and free up money to put toward savings or investing.
  • Maxed out your 401(k) and IRA. If your long-term goals include a comfortable retirement and you’re already contributing the maximum amount to your retirement accounts, it may be an appropriate time to explore additional investment types.

Working with a financial professional to help you meet your short and long-term goals is always a good idea.  An independent fiduciary advisor is required to put your best interests first.  They have the education, training, and experience to assist you in meeting your goals.