In a recent post, Mark Hauser Co-Managing Partner at Hauser Private Equity outlines the unique role a savings account may play in an investment plan. Specifically, he argues that it is not prudent to avoid altogether taking the risk and saving for retirement with “a banking institution or mutual fund.”
To reach your financial goals and avoid bankruptcy, investing and save in the stock market need to be part of your financial strategy. According to Mark Hauser whether you are young or old, there are still opportunities for you to invest right now. With a savings account, you can earn interest on the funds and sleep easy, knowing that if markets plunge downward unexpectedly, you have some cash stashed away just in case.
Although there is no guarantee that the markets will not decrease, keeping a portion of your funds in a savings account may act as an insurance policy against unexpected market downturns.
According to Mark Hauser, some of the advantages and disadvantages of a saving account include the following:
Advantages:
- Earn interest
- No need to determine asset allocation
- It’s easy to do and convenient to access
Disadvantages:
- Not a lot of variability. You can’t invest in the stock market or real estate.
Types of saving accounts
- Savings accounts through a banking institution
- Money market accounts through a banking institution
- CDs from a brokerage, bank, or credit union (CD= certificate of deposit)
Each account has its pros and cons. Therefore, it all depends on your situation, what you’re looking for, and your financial goals. The type of savings account you choose depends on your investment objectives and risk tolerance.
The bottom line is that although a savings account may not provide the most optimal environment for retirement savings, it still may play a valuable role. Everything has advantages and disadvantages, so you should do extensive research and ensure you understand your potential investment terms before making any critical decisions.