Should I Save or Invest Right Now?

Colin Ely says he doesn’t keep much in savings. Instead, he’s “aggressively invested in index funds.” The recent selloff in stocks has made him more reluctant to pull his money out—and potentially take a loss on his investments. But, if he finds “the right real estate deal” in the greater Philadelphia area, he’s willing to hit the proverbial “sell” button to make his dream a reality.

For the 31-year-old, the answer to the timeless money question—whether to save or invest—is straightforward, but for many it’s not so clearcut.

Fidelity investments’s recent study shows that the vast majority of Americans still prioritize their long-term financial goals. 63% of actively invested Americans surveyed have had their investing behavior changed since the COVID-19 pandemic.

And yet, this year hasn’t been so kind to investors, as the S&P 500 slumped about 19% at its worst, and is now down more than 13% for the year. Savers, meanwhile, are being rewarded by a slight uptick in interest rates—and rates are projected to reach pre-Great Recession levels by year-end as the Federal Reserve scrambles to quickly ratchet up a benchmark rate to quell inflation that hit a 40-year high earlier this year. This has made it more difficult to decide whether you should save or invest this year.

“This is the first time that many people have experienced real inflation,” says Kathy Carey, director of research for Baird’s Private Wealth Management group. This dynamic has prompted more questions from clients who want to “make sure they’re in the right,” she says, though Baird advisers are largely doling out the same advice as always by first asking clients: “What do you need that cash for?”

Having a clear goal in mind—like Ely’s goal to buy real estate—is important because then you can create a successful strategy to get there, adds Amy Richardson, a certified financial planner with Schwab Intelligent Portfolios Premium. That’s why, she says, the question of whether to prioritize saving or investing right now yields answers that are so specific and unique to a person’s financial situation. “There’s gray area, and that’s why I love what I do.”

Richardson suggests that people make money decisions according to which financial bucket they fall into. Short-term goals are for saving and medium-term goals can be up to five years. Long-term goals will open up opportunities to invest.

Savers as well as investors now have more choices for their money. After being near zero for two years, interest rates have started to rise. In May the Federal Reserve raised a key rate from 0.75% to 1.1%. People who are focused on the short term will see better rates for savings accounts, certificates or deposit (CDs), and savings bonds. Meanwhile, the market’s selloff could present an opportunity to buy stocks at cheaper prices.

That said, both Richardson and Carey advise considering the saving-versus-investing question in the context of your longer-term financial plan to avoid making any knee jerk reactions based on short-term dynamics. “By having that outline and knowing what you’re working toward, you can avoid the noise and stay the course,” Richardson says.

She adds that “tried-and-true” advice still holds, including the value of budgeting, building up an emergency savings fund, diversifying your portfolio, and crafting a financial plan that you can stick with over time. “It really is the same advice we’ve given all along.”

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