Savings and investments are two key components of personal finance, and they each have their own unique set of potential risks and rewards. When comparing the two, it is important to understand the differences and similarities between them, as well as the potential risks and rewards associated with each.
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Savings refers to setting aside money for short-term or emergency expenses, such as a car repair or medical bill. The main goal of savings is to have a cushion of funds readily available for unexpected expenses.
You never know when that electricity bill might bump(actually we always know), or whenever your cats might start using your wall as a scratching post.
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Savings accounts, such as a traditional savings account or a high-yield savings account, are typically considered low-risk options, as they are FDIC-insured and offer little to no risk of losing your principal. However, the interest rate on savings accounts is usually low, meaning that the funds may not grow as quickly as they would with other types of investments. Not to talk about how inflation is soaring, your savings would accumulate over time very true but inflation would always rise faster.
Therefore on the long run, you wouldn’t actually have gained anything since this form of savings can’t hedge against inflation.
Take for example, the inflation rate in Nigeria is expected to average 18.5% this year according to CPI while banks only promise about 4.2% to 8%. You could say in a way, you’re playing a losing game if you put all your eggs in one basket (savings)
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Investments, on the other hand, refer to putting money into assets that have the potential to grow in value over time, such as stocks, bonds, or real estate. The main goal of investments is to generate long-term wealth through capital appreciation and/or income. However, investments come with a higher level of risk than savings accounts as the value of investments can fluctuate depending on market conditions, and there is always the possibility of losing some or most of their initial investment.
One potential risk of comparing savings to investments is that individuals may put too much of their money into savings and miss out on the potential for long-term growth through investments. The low-interest rate of savings accounts means that the funds will not grow as quickly as they would with other types of investments. This could result in missing out on the potential for significant long-term growth, especially during times of high inflation.
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On the other hand, one potential reward of comparing savings to investments is that individuals may be able to find a balance between the two, allowing them to have a cushion of funds readily available for unexpected expenses while also taking advantage of the potential for long-term growth through investments. A well-diversified investment portfolio can provide steady growth over the long term and mitigate risk.
In conclusion, savings and investments are two key components of personal finance, and they each have their own unique set of potential risks and rewards. It is important to understand the differences and similarities between them, as well as the potential risks and rewards associated with each. When comparing savings to investments, it is crucial to find a balance between the two, allowing for a cushion of funds readily available for unexpected expenses and taking advantage of the potential for long-term growth through investments.
WHO IS DOPPLEY
His goal on hive is to make numerous connections with people and put out valuable articles for the hive community to consume and interact with. Basically to be like water, which slips through fingers but is still capable of holding up a ship.
He juggles many interests, writer, saxophonist, accountant, data scientist, trader, real estate agent and some others at once but his passion keeps him steady.
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