Investing in the stock market is potentially a high-risk proposition. This is especially true when there’s a downward trend. A bear market scares many investors away and steers them toward savings accounts or low-interest certificates of deposits (CDs).
Differences Between Investing and Saving
Setting money aside in a low-risk but low-return environment is saving. Money held in a savings option like a CD or money market account is more liquid than money in an investment type. This means you can access it more quickly in case of an emergency or short-term goal.There’s a low risk with saving, but there are also low rewards.
Global Economy Affects Investing Decision
A recession can mean heightened volatility and uncertainty in investment markets. There are wild swings, and that may be worrisome or even scary.But keep in mind that turmoil can create opportunities. You need to decide if that scenario means you stay away and avoid risks or jump in and seek rewards.
It’s not always clear what to do.
Six recessions occurred between 1973 and 2009. Some lasted a full year or longer, while others lasted less than a year. However, all of them eventually ended.
Financial markets are cyclical, with repeated patterns of peak, recession, trough, and recovery. Although every recession does recover, it’s not always big or soon.
Companies don’t always recover the same way. Some recover big, while others never recover.
So, you may be in a quandary. If you don’t invest, you miss out on gains. But if you do invest, you may experience losses.
Know Your Priorities Before Investing
The time horizon (the length of time you’ll have an investment) of your financial goals should determine whether to save or invest.There are goals that have a limited scope or definite endpoint. When this is the case, it makes the most sense to keep money accessible. Because if you don’t keep your money long enough in investments it won’t have time to grow before you need to withdraw it.
For example, someone in their 30s has a longer time horizon before they should need their money than an older person who is ready to retire. One can wait for the investment to grow, while the other may have to withdraw funds to finance living expenses.
There are other factors. For example, do you have a healthy emergency savings account? Setting money aside that’s accessible may be important if you lose your job or have a large emergency expense.
If you have high-cost debt, such as credit cards, and are paying a high rate, paying off your debt may be more important than investing.
If you have a short-term need like college expenses or medical bills, you might not want to invest. It’s better to pay those off.
When Not to Invest
You’re probably seeing the theme of investing. But it’s crucial you address some financial issues before investing.If you don’t have control over your day-to-day finances and are not well prepared for emergencies, you should not invest.
If you have a pension plan set up that you contribute to, but you’ve missed some monthly payments. This is an indicator you should not invest.
If you’re older and not healthy, you are unable to ride out market fluctuations. You should not invest.
Invest or Not to Invest That Is the Question
So, is investing a good option? It basically depends on your finances and personal situation as to whether it’s good for you to invest. Someone who abhors risk should probably not invest. And someone who wants a fast buck will probably be sorely disappointed.Investing is a long-term process. If you don’t have day-to-day finances in order you’ll probably take losses when you pull your money out of the market to meet a financial emergency.
Patience during an economic slowdown or other volatile event will do you well if you decide to invest.
