Cash savings are easy to access but may not keep pace with inflation.
If you’re putting money away for the future, you’re on the right path. But savers and investors set money aside in very different ways, affecting their ability to reach their financial goals. Do you consider yourself a saver or an investor?
You’re a saver if…
You’re unwilling to take on risk for the potential of higher long-term returns. You want to know that the money you’ve put away is safe and that you can access it whenever you need it. You’re most likely keeping your money in a bank account, guaranteed investment certificates (GICs), money market securities or short-term government bonds.
This is a good way to save for short-term goals, like a vacation or a new car. But if you have longer-term goals, like retirement or a child’s education, this approach isn’t as safe as you think. You’ll earn some interest on your money but not enough to keep pace with inflation. If your savings don’t outpace inflation, your money will actually lose value over time.
You’re an investor if…
You know you need to accept some risk for potentially higher long-term returns. The value of your investments may decline occasionally but you’re comfortable with short-term volatility because you know you have time to make up for occasional losses.
At the same time, you’re not interested in taking on excessive risk. Instead, you’re managing risk by investing in a variety of assets, including stocks, bonds, mutual funds and cash equivalents. Those cash equivalents are important, because you have both short- and long-term goals and sometimes you need to access your money quickly.
Striking the right balance
You can be both a saver and an investor. The goal is to strike the right balance between protecting your capital and achieving growth. You’ll want to get comfortable with accepting some risk, but not so much risk that you’re unable to recover any losses.
A financial advisor can help you find the right investments based on your financial goals, investment time horizon and tolerance for risk.
Contact your financial advisor or visit AGF.com.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.