When most people think of the term "investment," they tend to think of a handful of different things. They may think about their retirement accounts, like their 401(k) plans or a Roth IRA they have added money to. Others, if they're into shopping, may think of an investment piece, like a Henri Bendel purse.
Most people, though, regardless of their type, will not think of savings. They won't think that having money stashed away for a rainy day could really be considered an investment, because, well, it's not exactly something that gives typical returns.
However, this train of thought just isn't correct. Savings are an investment—and a mandatory one at that! Here's why everyone should focus on saving money for at least a little bit.
It's the ultimate low-risk investment.
In life, very few things are certain. Stock markets crash, businesses fold, and even collectibles can lose their value over time. Throughout history, there have been times where investments that seemed like "sure deals" were anything but.
One of the only certain things you can rely on is the need to have extra money in your bank account when things start to get ugly. When this happens, cash is often the most reliable thing you can have on hand—and that's exactly why savings are an investment.
Savings do not give you a normal return on investment, but the fact that they allow you to keep your lifestyle when riskier investments fail is a benefit you can't ignore. It's one of the best low-risk investments to have during a recession or depression.
It can reduce debt.
Debt is often described as a "reverse investment" by people who hate it—and they're right to call it that. Debt is literally a loss that keeps on losing your wealth!
When you add to your debt, you end up paying interest on it, which in turn, will eat into your investment returns. One of the reasons saving money is an investment is because you can use your savings to pay cash.
When you don't have any savings and a sudden problem occurs, you are forced to go into debt in order to recover from that loss. Savings provides a buffer that helps you avoid having to take that option.
You can actually use savings to invest in better items down the line.
It's no secret that many of the best investments require a lot of startup capital. That's why the ways you can invest $100 will greatly differ from the ways you can invest $1 million or more.
Having money saved up doesn't just prevent you from having to shell out cash. It also makes it possible to save up enough money to be able to invest in larger, more profitable endeavors down the road. For example, many people actually get the money needed to invest in real estate through savings.
Banks DO offer interest, just not much.
If you place your money in a bank, then your savings are an investment in the traditional sense of the word. Banks have interest rates, and while small, do help relieve at least some of the pressure that inflation can deal. Even if it's only 1 percent per year, it's still offering some returns.
When you think about the portfolio diversification it offers, it's also a good idea.
It's obvious that you need to diversify your portfolio. Betting all your goods on one investment is just poor judgement. One of the many types of diversification for your portfolio involves diversifying the form of investments across a wide spectrum.
Some of your investments can be dangerous, sure, but you also need something much more stable. What's more stable than fiat currency held at an FDIC-insured bank?
You can also think of it as an investment in your future.
Look, you never know what the future will hold. You could lose your job tomorrow. You could get hit by a car and require out-of-pocket care that could easily exceed $1,000. Or, you might end up getting a once-in-a-lifetime offer that could require extra money.
No savings means that your ability to make the most of your future in any situation is limited. You can't pay for a priceless antique you found at a yard sale with credit, you know!
Economics textbooks also tend to believe that savings are an investment, kinda.
Well, technically they kind of are the same thing when you take a look at the effects they have. This tends to be something economists use when looking at national outputs rather than individual portfolios.
Even so, if you put it into practice on an individual level, you will notice that there's some truth to it as long as you invest using the money you've put aside. If you save money in the future, you're freeing up the liquid you don't have to pay for other endeavors—including investing.
If you also think about the concept of investing in currency, then savings are an investment in fiat currency.
It's worth pointing out that fiat currency isn't the only kind of money on the market now. People are now choosing to invest in Bitcoin and looking at altcoins to try to turn a profit.
Saving up money in a bank is not really that much different than saving up Ether or Bitcoin in a digital wallet. You're still stockpiling currency that you are hoping will appreciate in value—or at least retain its value enough to be worth keeping around.
We're not sure how fiat money affects Bitcoin, but we do know it's a good idea to have a little of both if you roll with crypto.
It's still adding value to your portfolio in one way or another.
At the end of the day, the goal of investing is to make your portfolio's value grow. By saving up money in an account, you are adding some monetary value to your portfolio.
Straight liquid money is the most stable form of value you can add to a portfolio. Even if that is value that doesn't accrue very quickly over time, it's still value that helps you achieve the goal of making your net worth grow.
Finally, it's worth pointing out that money is the standard that everyone accepts.
Let's just be real for a minute. There is no form of investment that is more liquid than money. It's what money is basically defined by, and it's why money is the standard currency in the trading scene.
Liquidity is crucial, and that means that savings are an investment that's designed to trade at a breakneck speed. So, by having extra money on hand, you start investing in your ability to trade as fas as humanly possible too.