When does it make sense to invest your savings in mutual funds?
We all know that you don’t get wealthy on the interest that saving accounts pay. However, saving accounts do still serve a valuable purpose.
It can be frustrating when you are saving for a financial goal, and you see the money sitting in your account doing nothing.
So, let’s see when it makes sense to invest your savings.
DETERMINE THE TIMEFRAME
Assuming you are debt-free and are being intentional with your money –
You first need to decide on the time frame of your financial goal. Is this short-term or long-term savings?
For example, if you’re saving for a vehicle that you plan to purchase in the next year or so that is a short-term goal.
If you are saving to purchase a home in the next 3-5 years, then that would be considered a long-term goal.
When saving long-term people usually get antsy about their money just collecting dust. So, this is typically when the question comes up.
In some long-term saving cases, it doesn’t make sense to take the risk of investing. Here’s how to see if that applies to your long-term financial goal.
WHAT TO DO WITH LONG-TERM SAVINGS
Let’s say you plan to purchase a home in the next 3-5 years.
The first step would be to narrow down the time frame. Three to five years is a big span of time. So, realistically deciding if the goal will be completed in either three or five years will help you move along to the next step.
If you decide that you don’t want to wait for five years to purchase your home, then you are better off keeping that money in your savings account.
If you think five or more years is a realistic time frame, then you should invest your savings in well-performing mutual funds.
The reason is that over 90% of the five-year periods in investing history make you money. If you invest your money and leave it alone for five or more years then you’re much more likely to make money.
And if you leave your money for only 3 years, then you are at a 67% chance of making money.
If you are willing to take that risk on savings under five years, then that is for you to decide. However, it’s important for you to know that the shorter the term the bigger chances you have of losing money.
Being well-informed and intentional with your long-term savings will reduce your risk and maximize your profits. Follow along to learn more about finances!
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