I am quite sure we all understand the importance of saving a portion of our income. This is all well and good, but should we be putting our money under the mattress for a rainy day, or as any wise businessman would advise: shouldn’t we rather be investing our money instead?
We have all been taught from a very young age the importance of saving. For example, as a child if you are given an allowance of TTD$10.00 a week, and you spend $5.00, you should save the other $5.00. Everyone understands the importance of budgeting and living within what they can afford. The question to ask yourself is this: is this concept enough?
The aim of making an investment is to obtain a larger financial gain at the time the investment matures. Investments are riskier than saving in that the investor might end up making a large profit or ultimately be left with nothing. Investment products include shares, bonds, ETFs, mutual funds etc. Investing is aimed at achieving longer term goals since the period of maturity for many investments are for the long term rather than the short term. Many people tend to prefer to invest their funds in some way as they believe that the return that can be obtained through an investment is much higher than any return that can be obtained by keeping the funds stagnant (even if it’s kept in an interest earning savings account).
Short-term: Ready to go
Saving is typically for smaller, shorter-term goals in the near future (usually three years or less) such as going on vacation or having money for an emergency.
|Long-term: Achieve major goals|
Investing can help you reach bigger long-term goals (at least four to five years away), like saving for a child’s university education.
Ready access to cash
A savings account gives you access to ready cash when you need it. But many savings accounts limit how often you can withdraw your funds.
Harder to access cash
When you invest your money, it’s typically not as easy to get your hands on your funds as quickly as compared to a savings account.
If your money is in a regular savings account, it’s at minimal or no risk, because your funds are insured by the Deposit Insurance Corporation (DIC). That means that if anything ever happened to the bank, the DIC insures each person’s money to at least $125,000.
Always involves risk
You may lose some or all of the money you invest.
You can earn interest by putting money in a savings account, but savings accounts generally earn a lower return than investments.
Potential for Profit
Investments have the potential for higher return than a regular savings account. Your investments may appreciate (go up in value) over time. This increases your net worth, which is the value of your assets (what you own) minus your liabilities (what you owe). If you sell for a higher price than you invested initially, you make a profit.
The concept that money makes money is well-known. The responsibility now falls on us to make the most money with whatever resources we have. Over the last few years, many of the our financial institutions with whom you may have entrusted your money has given little to no returns.
This present investment climate, although changing, still offers us meagre growth on our savings. The government of Trinidad & Tobago in recognising this shortfall in return for savings offered a savings bond to the general public and to institutions with interest rates ranging from 4.5% to 6.6% over a five to twenty-year period. The response was overwhelming in that it was oversubscribed.
As a result of this action we the investing citizenry have shown the appetite for worthwhile investments. The time for investments is always the present, rather than waiting for a sudden windfall.
If you are so fortunate as to receive a windfall then you need to think seriously about what is the best way forward.
If you are not so fortunate to receive such a windfall then create your own with proper investments.
We at Firstline recognise the importance of that concept and we look forward to discussing and developing a portfolio to match your financial expectation.