Chapter Four: Logistics, Factoring in Saving and Investing
Why Save and Invest?
Few things in life are absolutely certain. However, even though life is unpredictable, we can still confidently prepare for the future.
In this chapter, we will focus on Saving and Investing. Not only do we want to save for our goals, such as retiring or a trip to Japan, but we also need to prepare for emergencies, whether that is deployment, relocation, loss of a job, a gap in pay, unplanned root canal(s), etc. Emergencies will happen whether we like it or not, and our goal is to help people prepare for these things by having an emergency savings account just as we prepare for our retirement.
Save or Invest? : Understanding Risk
- Risk Tolerance: Understanding risk versus reward is extremely important when evaluating allocating a portion of your benefits into savings or investing accounts. Equally important is understanding how you react to market fluctuations (your personal tolerance for the risk involved).
- Goal: Whether to save or invest also depends on what you are saving for. How much money do you need, and when do you need it?
- Time Horizon: Finally, when deciding whether to save or invest, it is also essential to consider how long you have until you need the money. Saving is considered more for short-term goals, whereas investing needs more time to gain value and is primarily for long-term goals.
Savings accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account. This makes savings accounts a pretty safe option. However, your rate of return for traditional savings and high-yield savings accounts (HYSA) as of October 2024 is between 0.1% or 4.3%*, with HYSAs providing a considerably higher interest than traditional savings accounts. Learn more about HYSA’s here. Links to an external site.
Investing your money into the S&P 500, however, can provide higher returns. Since its inception in 1957, it has returned investors, on average, over 8% per year (through 2023). While investing can result in a higher rate of return, it involves risk, so be careful before you chase that high rate of return. Additionally, liquidity is a crucial part of evaluating saving and investing.
Deciding whether to save or invest can also include the time it takes to access the funds. Savings accounts typically allow you to withdraw multiple times, and you can have access to your money quickly, if not immediately. How quickly you can access your money is called liquidity. Cash is the most liquid, and traditional savings and checking accounts follow afterward. HYSAs, depending on terms, may have some processing time, but these examples are generally highly liquid. Comparatively, stocks, bonds, Certificate of Deposits (CDs), real estate, etc., typically take longer to access the cash value and, therefore, are less liquid.
Deciding whether to save or invest depends, and assessing risk is vital in determining what works best for you.
For a more in-depth look into different savings and investment vehicles, check out our saving and investing module.
*Savings account interest rates can vary and fluctuate along with the current market, just like stocks, bonds, Certificates of Deposits, Money Market Funds, etc.
Table of Contents
Chapter One: Welcome to Money Bootcamp
Chapter Two: How Can I Decide Where to Live? Maximize Your Benefits Beyond Paying Tuition
Chapter Three: How to Manage Benefits Effectively