Saving vs Investing: How to Sort Through Conflicting Advice in a Changing Market

The S&P 500 Index has climbed over the past year, but the market returns have been marked by frequent volatility. High tech and banking stocks have done well, while energy and communication had less impressive performances. Returns on some retirement savings plans have declined as well. Long-term projections have flattened out in less than a year, even as high as double-digit growth losses.

To be clear, saving cash is always a good idea. You’ve heard of the rule of having enough savings on hand to cover all your expenses and bills for six months in case of an emergency—it’s a rule that will always be solid advice. But, where do you go from there when it comes to deciding on saving vs investing?

How to manage non-emergency use of cash

Saving vs investing cash doesn’t mean you’re doing nothing to make your investments grow, especially if you are unsure of how you desire to invest. Wealth managers will tell you it’s a change in investment policy—from wealth generation to wealth preservation. Understandably, however, you want to preserve your cash in that way that when you are ready to invest again, you can do so quickly.  

More and more high net worth individuals are investing in gold products and securities, which are also highly liquid assets. Money markets and treasury bills are both great options to have when you want to “wait and see” when market conditions are “bearish.” You can also have your broker reinvest your dividends. Another strategy for preserving your wealth is to talk to your advisor about keeping a “holding” pattern for an allocation if you are below your strategic target for an asset class or sector that isn’t performing particularly well at the moment. Hopefully, when you do receive dividends, you aren’t reinvesting in the same product.

One other thing to think about with regards to investing is that any cash you may need within five years aligns much more with a savings decision than an investing one. You can find the “consider carefully before investing” disclosure in the footnote of just about every broker’s marketing or advertising piece you see. If you aren’t prepared to let your investment grow over many years, then looking into alternative savings avenues is going to be essential.

The downside of foregoing an investment decision

According to Investopedia, if you had invested $220 on 22 shares during Apple’s IPO in December of 1980, in August 2018 your shares would have been worth over $100,000. In terms of opportunity cost, making conservative investment decisions when markets are uncertain can be a smart move. But you also run the risk of losing out on the golden opportunities which do appear from time to time. Single-stocks, venture capital, IPOs, and mergers and acquisitions (M&A) are happening all the time. Hedge funds, for example, have underlying assets for which fund managers often have combinations of short and long positions. When they are “shorting” a position, they are betting on a stock to lose value during a projected time window. That’s why it’s good to research companies from different industry sectors, especially the small and medium cap companies that don’t necessarily make it into finance news. There are almost always opportunities elsewhere when NASDAQ stocks and your typical investment choices falter.

How to make sense of conflicting advice on saving vs investing

It seems like lately, the finance gurus on TV and almost everything you read in finance news has conflicting strategies on how to make investment decisions during volatile market conditions. Everyone has a different set of experiences and investment strategy preferences. By the time you engage in that meaningful conversation, it’s tough to know who to believe. 

This is why it’s crucial to do your homework. Get a few newsletters delivered weekly to your inbox. Familiarize yourself with the facts about the numbers; that way, it’s easier to distinguish what are only opinions. And, at the end of the day, there is going to be nothing quite as good as an experienced wealth manager who can give you the kind of advice that is backed by the kind of research and intuitive knowledge that is honed from years of experience. This person needs to be especially diligent with conducting independent market research during times like these. They will know what investment products are doing well and rebounding, which is what you want—not those that are unproven. They can also help you to rebalance your portfolio with a higher cash allocation if you want to shift to a wealth preservation strategy. Experts at a firm like SD Mayer, with over 30 years of combined experience in guiding investors like you through times like these, can help provide stability during these shifting times.

SD Mayer’s wealth managers can sit down with you to look at what the market is doing and where you can fit into it, based on your individual goals. We’ll take a holistic look at your portfolio and identify the strategies that will work for you. Contact us today to get started with an initial consultation.

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