Guest post by Nicholas Boyle
In the current financial climate, many people are giving a lot of thought to how they should use their money. Some are happy to carry on as normal, but others may be interested in finding the best way to save or invest their money, and make it grow.
Choosing the right way to save or invest is important. When inflation is high, the interest rates available on most savings accounts won’t keep up with increasing prices – meaning that in real terms, your money would be losing value. That has led many people to consider other options, such as investing in gold.
Investing in gold has proved lucrative for a lot of people in recent years. But like any investment, it has its risks, and some people may prefer to stick with the safer (but potentially less rewarding) option of a savings account.
Why is buying gold so popular?
Throughout the ages, gold has been something of a ‘universal currency’. It’s held by almost every central bank in the world, and no matter what is going on in the global economy, it tends to keep a relatively high value. Most importantly, that value can grow. Someone who buys gold one year can often expect to sell it for significantly more in ten years’ time – or even the next year.
Buying gold is not without its risks, though. In the short term, any market can be very volatile, meaning your investment could lose value from time to time. It’s also potentially prone to ‘bubbles’ in which the value increases quickly over time but then falls back significantly.
Could regular savings be a better option?
Most savings accounts can’t give you the kind of returns that buying gold could offer, but saving is still much more predictable and stable over time. Your money will almost certainly grow year-on-year, if only by a small amount. You don’t risk a sudden drop in value, and even though savings can technically ‘shrink’ when inflation is high, they will still obviously grow if you pay money into your savings account at a faster rate than inflation.
To put this into perspective, imagine inflation remains at 4% for a year (a relatively high rate): on $1,000 of savings, you’d simply need to make sure you added about another $40 that year to keep up. For 2% inflation (a more typical rate), you’d only need to pay in $20. And even if you didn’t, $1,000 of savings could still help a lot in a financial emergency.
Ultimately, buying gold and paying into a savings account are two completely different things. Buying gold is basically more suitable for experienced investors who can afford to potentially lose some of the value of their investment. But if you’re simply looking to save for a rainy day, or provide security for your family, a savings account is probably the best option.
Some things to keep in mind
You should only invest your money if you’re financially secure. Although saving can provide financial security in itself, it’s probably not possible if you’re already struggling financially – and it might not even be a good idea if you have debts to repay.
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