It is important to understand the distinctions between investing and saving, regardless of whether you are starting to think about how to use your money or have a well-established financial plan. Although these terms are frequently used synonymously, they refer to distinct methods of managing your personal finances.
At different stages of your life, you should think about investing and saving. The important thing is to know the advantages and disadvantages of each and how they fit into your overall financial journey.
Investing can be a powerful tool for building wealth, but it can also be intimidating, especially for young investors who are just starting out. While saving money is a good habit, putting that money to work through investing can be even better.
This article explores ten assets that can be a better option than simply holding cash, providing valuable investment tips for young investors looking to grow their wealth.
Why Cash Isn’t Always King
While saving money is essential for emergencies and short-term goals, holding cash in the long run can be detrimental to your financial well-being.
Inflation, the rising cost of goods and services, erodes the purchasing power of cash over time. This means that the $100 you have today won’t buy you as much in the future.
Investing your money in assets that can outpace inflation helps to protect your purchasing power and grow your wealth over the long term.
10 Assets Better Than Cash
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Real Estate and Land: Investing in real estate or land can be a great way to build wealth, especially in the long term. Property values tend to appreciate over time, and rental income can provide a steady stream of passive income. However, investing in real estate can also be capital intensive and require significant upfront costs.
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Stocks, Bonds, and Index Funds: These are some of the most common investment vehicles, offering varying levels of risk and return. Stocks represent ownership in a company and offer the potential for higher returns but also come with higher volatility. Bonds are less volatile but also offer lower returns. Index funds provide a way to invest in a basket of stocks or bonds, diversifying your portfolio and minimizing risk.
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Foreign Currencies: Investing in foreign currencies can be a way to diversify your portfolio and hedge against inflation. However, it’s essential to research and understand the economic and political factors that can impact currency fluctuations.
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Cryptocurrencies: Cryptocurrencies have gained popularity in recent years, offering the potential for high returns but also significant volatility. Investing in cryptocurrencies requires a good understanding of the technology and the associated risks.
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NFTs (Non-Fungible Tokens): NFTs are unique digital assets that can represent anything from artwork and music to in-game items. While the NFT market is still relatively new, it has the potential for significant growth in the future.
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Precious Metals and Gemstones: Gold, silver, and other precious metals have long been considered a safe haven investment, offering a hedge against inflation and economic uncertainty. Gemstones like diamonds and emeralds can also be a good investment option, but it requires expertise and careful selection.
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Luxury Items: Luxury goods like watches and handbags can appreciate in value over time, making them a potential investment option. However, it’s important to choose items with a proven track record of value appreciation and understand the market before investing.
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Art: Investing in art can be a rewarding experience, but it requires knowledge and expertise to choose pieces with potential value appreciation.
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Vintage Motors: Classic cars and motorcycles can be a valuable investment, but it’s essential to choose models with historical significance or limited production runs.
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Raw Materials (and commodities): Investing in raw materials like oil, gas, and steel can be a way to benefit from global economic growth. However, it’s essential to understand the factors influencing commodity prices and manage the associated risk.
Building Your Investment Portfolio
When building your investment portfolio, consider your risk tolerance, investment goals, and time horizon. Diversifying your portfolio across various asset classes is crucial to minimize risk and maximize potential returns.
Investing your money in assets that outperform inflation can help you build wealth and achieve your financial goals. By understanding the different asset classes and choosing those that align with your risk tolerance and goals, you can make informed investment decisions and set yourself on the path to financial success.
Remember, investing involves risk, and it’s essential to do your research and consult with a financial advisor before making any investment decisions.
Determining the Right Approach
According to Baskir, “investing is to running what saving is to walking.” “Having enough saved up for a rainy day, typically equal to three to six months worth of expenses in the event of a layoff, health issues, or other unexpected changes to a financial situation,” he continues, is crucial before making any investments.
To determine the best approach for you, consider this checklist:
- If not, start saving. Do you have enough cash on hand to cover three to six months’ worth of fixed expenses?
- Start saving if you have any other short-term objectives that call for immediate access to funds, such as vacation arrangements.
- Are you going to be able to retire by the age you want to be? If not, you should start investing.
- Do you realize the risks associated with investing this money for a long-term goal like retirement? You may have to wait until you’re 59½ years old to access it without paying taxes or penalties, and there will be volatility risk, among other things.
- If you feel comfortable with delaying access to your funds in order to benefit from compound interest, you might want to consider beginning an investment.
- What percentage of your monthly income do you currently invest and save? Where do you feel you’re falling short?
Time Horizon
The time horizon of your financial goals is one of the most important factors to take into account when choosing to invest or save. Some goals have a limited scope or a definite endpoint. In these situations, it might be best to keep your money close at hand in a savings account or other similar account because you won’t be holding it long enough for it to appreciate significantly in an investment setting.
Bradley Baskir, vice president and financial advisor at Morgan Stanley in Boston, says that saving is usually preferred “when the time horizon for liquidity is under 12 months.” He adds that saving for short-term goals by “depositing that pool of money in a savings account may make more sense than investing it because [you] can feel confident that the money will be there” when the goal arrives.
However, other financial objectives might be more important or flexible. When making retirement plans, you are probably looking years or even decades into the future. Longer-term goals like these benefit from an investment-centered approach. The extended duration of these priorities implies that your invested funds will have a greater chance of growing, and you won’t require them to be liquid until you’re getting close to achieving the objective eventually.
“Don’t Keep Your Cash In The Bank”: 6 Assets That Are Better & Safer Than Cash
FAQ
How much of assets should be kept in cash?
Is cash the best asset?
Is cash better than investments?
Is it better to have cash or savings?
Is it better to have assets or cash?
In general, it is better to have assets than cash. Cash can lose value over time due to inflation, whereas assets can appreciate, primarily if these assets are investments, such as stocks, bonds, and real estate.
Why are assets important?
Assets are important because their sum contributes to a person or company’s net worth. The greater your net worth is, the better your financial position. Having enough assets on hand can help you or a company handle all types of financial emergencies. The goal is for your net worth to increase over time. Is it better to have cash or property?
Why should you invest in cash?
This cash helps you manage the risks of investing. Any asset you buy can lose value or fail to produce the income you expected. Stocks, for example, rise and fall in value daily. It’s easier to tolerate those normal ups and downs if you have another source of cash available to cover financial emergencies.
Is cash a good investment?
Cash is an alternative investment that not enough people are talking about. In today’s market environment, with interest rates rising and high volatility, cash can provide a safe haven for investors. However, many financial advisors may not be eager to recommend it if they aren’t receiving commissions or fees.