As you can tell by the title, this is not another post about the election or how the election will impact your portfolio. Honestly, there will be plenty of those posts being published today, but the truth of the matter is that no one knows what’s going to happen to the markets after the election, even if some people pretend they do, so let’s not worry about something we have no control over.
As we have approached the end of election season, more and more people have reached out to me asking if they should alter their investments or move to cash with all the volatility that is happening. You can answer that question by looking at your goals. If you goals haven’t changed then you probably shouldn’t make any changes based on the outcome of the election. Stay invested through these times. Almost every year there is an event that shakes up the markets, and as an investor, you are rewarded for staying the course through volatility. You just have to be able to stomach it.
The question about what you should do with their investments boils down to an understanding of what we are investing for. For millennials, the most common answer is retirement. And if that’s the case for you, this week is not going to make or break your retirement that is 30 years away. It just won’t, so stay invested. Other people have responded that they are worried because they are planning to use their investments for a major purchase in the next few years. And truthfully, if that is you, I can get why you are a little nervous. Money you need in the next few years should not even be invested in the stock market. The risk is not worth the slight gain you could see in that short of a time frame.
Anyways, the more people I spoke to, the more I realized that there is a misconception on what you should invest for vs what you should save for. Understanding the difference between the two can help you stomach these volatile times and stick to your plan! So let’s look at the difference between them and when you should invest vs save.
Saving vs Investing
The main difference between saving and investing is the amount of risk that is taken. Saving is the act of stowing away money for a future need that is typically in the near future. With saving it is all about having the money easily and quickly accessible for when that time comes. Savers typically store this money in a savings account due to its safety and liquidity.
Now, investing is similar in the sense that you are putting money away for sometime in the future, but here you are typically looking for a higher return in exchange for the risk you are taking on. You can invest in stocks, real estate, collectibles, ETF’s, etc. The goal is to buy them and then sell later at a higher price for a profit. You are taking the risk that the good you bought could become less valuable and lead to you losing your dollars you invested. Typically, you invest for the long term!
As you can see, with both investing and saving your objective is to have money in the future for whatever your goal is. The main difference is the amount of risk you are taking on as well as the timeframe you have.
When To Save vs When To Invest
I encourage you to take some time in the near future and think through what you are saving and investing for. The goal is to save for the short term and invest for the long term. And remember, you will be rewarded for continuing to invest in the stock market and holding on to those investments for the next 30 or 40 years to come. Do not make any crazy changes due to headlines and fear you see in the media.
If you found this article helpful and want to grow and learn more about finances and life, join many other millennials and subscribe to my monthly newsletter.