Investment Benefits Vs Traditional Saving System

Investment Benefits Vs Traditional Saving System
Australia is a country of investors, with nearly half of the adult population holding investments
in addition to their super, reveals a recent survey.
There has always been a debate among people when it comes to investing vs. traditional savings
system. Which is better? What should you choose? - unclaimed money government
5 Benefits Of Investments Over Traditional Savings
1. Higher Returns
Starting with the first benefit on our list, higher returns is one of the top reasons why people
should invest instead of saving their money in a traditional account. When you compare the same
with savings accounts, the latter falls much short. Traditional savings accounts offer an APY of
under 1%. Your money loses its purchasing power over time. Additionally, you don’t have any
control over your investment strategy. You’re limited to a steady, low rate of return.
2. Ability To Beat Infalation
Inflation is the enemy of wealth. If your money is parked in savings accounts with interest rates
lower than that of the current inflation rate, you’re already getting poorer with each passing day.
In order to preserve your financial resources, if not grow them, you need to put your funds in an
investment product that beats inflation. Luckily, most of the investments, stock market-related or
inflation-protected term deposits, offer inflation-beating results. You can be rest assured that
you’ll have the same financial capacity over the coming years. For people prioritizing savings
over investing, the traditional interest rates on a savings account are already below the
prevalent inflation rates across most of the last decade.
3. Create A Sizeable Nest Egg
One of the primary intents of investing is to create financial resources for long-term goals, such
as retirement, real estate, child’s education, or starting a business. You can achieve your financial
goals by creating an investment strategy that aligns with these goals. For instance, if your goal is
to save for retirement, investing consistently through mutual funds (index funds) will help you
build a sizeable retirement nest egg. Similarly, you can opt for the security of bonds to save for
short-term financial goals. You don’t have to take additional risks for your short-term financial
requirements. You can do the same through savings accounts, but you’ll have to save a lot more
than what you would otherwise invest. We tried multiple scenarios, and in every single one of
them, you’ll have to invest 2x, 3x, and even 5x times the money to achieve results similar to
investing.
4. Strategic Diversification To Reduce Risks
One of the primary concerns of individual investors is the risk involved in market-related
investments. There is no doubt that stock market investments are subject to market volatility.
You can grow your money manifold, but there’s always a possibility of losing your funds in
stock market products. However, diversification can help you reduce your investment risks.
Financial advisors recommend investors to add stability to their portfolio by dedicating a portion
of their portfolio to safer products, such as bonds and term deposits. A diversified portfolio will
not only help investors lower their risk, but they’ll also earn decent returns over time.
Conventional savings products, on the other hand, are protected against any risk. You don’t bear
additional risk, but the downside is a below-average rate of return.
5. Higher Liquidity
Stock market investments provide higher liquidity in comparison to traditional savings products.
All you need to do is to sell your stocks, or units in case of mutual funds, to withdraw your
investments. Most of the market-related products do not have lock-in periods (venture equity is
one of the exceptions). However, you need to be careful about your effective tax rates or the
impact of short-term capital gains taxes on your returns. Most traditional savings products, such
as term deposits, bonds, have specific maturity periods. Your funds are locked for the said
duration. You may incur penalties for premature withdrawals of traditional savings.
Summary
Investing is how you build and preserve wealth in the long-term. The trick is to clearly define
your investment objectives and devise a strategy to achieve them.
Astro Finance is an investment advisory firm that provides managed investment accounts and
other financial solutions for individuals and businesses. Reach out to our customer support team
for more information on how you can start building wealth by investing today, visit Astro
Finance to learn more.