It’s time for another thrilling episode of… INVESTING DEATHMATCH! In which we pit two forms of investing against each other and see which one escapes the struggle unscathed.
Today’s fight is an ancient grudge match between two opposing philosophies: extreme caution and risk-taking. In one corner we have investing in the stock market—an inherently risky proposition but one that comes with untold rewards. In the other, we have the option of the risk-averse everywhere: just… not with the stock market, and instead, playing it safe by sticking your money in a savings account.
It occurred to us that we needed to cover this battle to dispel some incorrect assumptions about money management.
After the Great Recession and stock market crash of 2008, a lot of young people coming of age in a new and fragile economy were scared away from the stock market. They saw the grownups around them ruined by plummeting stocks and improperly leveraged debt.
As a result, millennials are statistically less likely to have anything invested in the stock market—whether it be through a retirement fund or a managed portfolio. These younglings are choosing to play it as safe as possible.
But is that truly the way to win this Investing Deathmatch?
Fighters… TAKE YOUR CORNERS!
The reigning champion: Saving your way to wealth
In light of the harrowing cautionary tale that is the 2008 crash and Great Recession, why would anyone want to risk losing money to investments? The stock market fluctuates more often than the tides, and far less predictably! You could invest money one day and a week later the amount could be cut in half! Better to keep it locked up tight in a savings account where there’s never any risk of it disappearing, amirite?
After all, a cobra in the hand is worth two in the pit! (Pretty sure that’s how the saying goes.)
Saving your money is a great way to make sure that money will never magically disappear due to the ups and downs of the stock market. It will gain a few pennies every year in a traditional savings account. And if you stick your savings in a high-yield online savings account, you’ll even come close to keeping up with inflation for the most part!
But even the best high-yield savings account right now only earns 1.9% APR (that’s the interest). 1.9% is certainly better than nothing. And for those of us who are permanently panicky herd animals deep in their hearts, the lack of risk involved in a savings account is extremely comforting.
So you sock your pennies away at a 1.9% return, mostly avoiding the cost of depreciation and barely batting an eyelash when others are freaking out over recessions. How very responsible! How cautious! How risk-averse and mature!
Do you also order vanilla at Baskin-Robbins?
The upstart challenger: Investing in the stock market
Let’s not play: thirteen out of ten financial experts advise you to invest. And there’s a reason for that.
The average interest rate for the major stock indexes over the long term is 9%-10%. But let’s be a little more conservative with this fighter’s stats. Let’s assume a 7% rate of return on your investment portfolio (which is what thirteen out of ten financial experts agree is pretty normal). No need to get mathy with it—even the drunkest bitch can see that’s a bigger number than the 1.9% your savings account is earning.
“That’s rich, Piggy,” you scoff. “What about that 800 point drop the Dow Jones experienced just last week?”
Yes! Let’s address the volatile, steroid-addled gorilla in the room!
The stock market is not for short-term savers. Its whole model is based on high risk and high reward. So you get the best results when you play the long game. If you panic over every drop in the market, bemoaning the money you lose in the short term, you’ll fail to see the bigger picture: that over the years, you’re still earning way more money than you would if you just stuck your money in a savings account.
I’ll be real with you: I haven’t even glanced at my investment portfolio since the big drop in the Dow Jones last week. My laissez-faire attitude isn’t because I have money to burn! It’s because I know that by steadily investing over years and decades, I’m not only going to make up for that loss. I’m going to surpass it. By like… a lot.
Even if the idea of gambling with the market terrifies you, you should still invest. You can set up your accounts according to how much risk you’d like to embrace: low, moderate, or high. The stock market is like a video game. Set it to the lowest difficulty setting at first! Once you learn how to play the game, then you can raise the difficulty settings, accepting more risk for higher rewards.
And the winner is…
Investing. By a long shot. Like, it’s not even close. Investing is the Sarlacc and saving is a random disposable mercenary on Jabba the Hut’s floating yacht.
Yes, by investing in the stock market you are absolutely embracing risk. But over the long-term, even with the natural fluctuations in the market, the investor will come out ahead of the saver.
Most of us are not paid nearly enough to save our way to retirement. Instead, we need to get there through the power of compound interest. And the best way to do that is through investments.
Bear with me while I hit you with some concrete numbers. Two humanoids, both alike in dignity, in the Yeare of Our Lorde 2018, have $1,000. One sticks their money in a high yield savings account earning 1.9% interest. The other sticks it in an index fund earning about 7% interest. In ten years, the saver will have $1,207.10. The investor will have $1,967.15.
That’s not even accounting for additional saving! That’s just the compound interest! The investor nearly doubled their money. The saver did ok I guess.
Ladies and gentlemen, this wasn’t a fight. It was a massacre.
How to join the fray
Opening a savings account is super easy and straightforward. But for some reason, investing has always seemed mysterious and temperamental—the Dark Arts of financial education.
But this is an utterly false characterization. Many, many excellent writers have published easy how-to guides on starting baby’s first investment portfolio. Here are some of our favorites:
- Atypical Life: How to Invest in Index Funds: A Beginner’s Guide
- The Dumpster Dog Blog: When it comes to investing, the EASIEST method is actually the BEST method
- Half Banked: How to Start Investing as a Total Beginner: Four Easy Options
Some of you might be investing in the stock market already without even realizing it! If you have a 401(k) or a 403(b) through your employer, that retirement fund is actually part of the stock market! You don’t even have to be traditionally employed to have a retirement fund invested in the stock market: you can open a Roth IRA (individual retirement account) all by yourself!
The point is that you need to gird your loins and embrace a little risk in order to start saving today. Over time, your investment portfolio is going to beat the everloving shit out of your savings account. And while it’s fine to have both, as they both serve their purpose, I know which fighter I’m betting my money on.
Enjoyed this Investing Deathmatch? Get more of our solid gold investing advice along with professional wrestling gifs here: