Should You Save Or Invest

In establishing a plan to provide for the future, a definition of the possibilities needs to be established. There are really three different types of saving for the future. Many article state there are two but I contend there are really three although the third is a slight stretch.

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The first type of saving is putting your money away in what are called debt instruments. These are cash, T-bills, bonds, CD’s, and annuities. Putting your money in these type of saving for a long-term investment is in essence only slightly better than putting your money in your mattress. If you had invested one dollar in 1926 and conservatively put it into a savings plan, the after tax, after inflation worth seventy-seven years later would be worth $1.18.

The second type of providing for the future is known as investing. This type is accomplished by buying shares of stock and putting your money into some type of equity or stocks. The return is higher so the risk is higher also, but over the same seventy-seven years, your money would have established a 6 – 8% of after tax, after inflation return. There are, in truth, ups and downs with this type of investment. However, history has shown that following the S & P 500 stocks provided a decent return on the investment.

The third type as I said is not really a true investment but it may be looked at one. If you have non mortgage debt that is charging you above 10% interest, by paying it down you are in essence earning over 10% on your money. This then is a form of saving your money.

Long term data provides us a chance to evaluate the differences between savings and investing. Prudence would indicate that your trading systems provides you with the conservative side of investing but by doing so you will out do what you would have done with a savings plan. Of course, a proper allocation of your funds over several different types of investments is the smart way to go.