Why Is Investing So Much Better Than Saving?
Every investor is driven by two powerful motivations. On one side, we have the desire for gain, and on the other we have the fear of loss. The equilibrium between these two influences determines one's investing personality and dictates the level of risk they are willing to take. Typical attitudes consider investing in stocks to be high-risk while keeping a savings account is considered to be a safer option. However, there are several reasons why investing is a better long-term option.
Returns on the majority of investments will go up and down over time. Stocks are volatile and can be terrifying in the short-term. But in the long term, they out-perform virtually every major asset type - since 1926, stock market returns have averaged 10%, which is far higher than bonds and fixed-interest options. Those conservative investment opportunities have low yields, but they still offer greater returns than a savings account.
Savings accounts are generally protected (up to a point) by insurance. That makes them safe places to keep your capital, but with that safety comes extremely low yields - less than 1% in many cases. There are a variety of options you can take, and all guarantee safety for your money, but they offer little in the way of gains.
Investing has inherent risk, and unexpected things can happen to deal you a devastating blow without warning. Even powerful companies and experienced investors can lose out if they fail to stay ahead of the curve. Of course, there are also risks in utilising savings accounts. Interest rates govern the yields on savings accounts, and when rates get low and inflation gets high, the loss of value in your money is equal to losing it in a harsh downturn in the stock market. That element of risk is still there, but with far less potential for gain than what investing offers.
When you have time to play the markets - when you aren't close to retirement - investing is the only way you are going to make significant gains from your capital. And the difference between what you can gain from saving and what you can gain from investing is huge, so on balance investing is a far better option in the long-term than saving.
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