Risk and money

I’ve had friends tell me that they choose not to invest in the stock market because it’s too risky. These same friends prefer the safety of a savings account with an interest rate at an approximate U.S. average of less than 0.05%–0.1%. It is true that the total sum of dollars placed into a savings account will likely not decrease but increase, albeit at a snail’s pace. However, due to the rate of inflation, which has historically been higher than the average savings account interest rate, the purchasing power of those dollars will diminish over time as inflation (the cost of goods and services) increases. For example, according to the U.S. Bureau Of Labor Statistics CPI calculator, $1 in January 2020 had the same buying power as $1.55 in January 2021. It’s up to each of us to determine the level of risk we’re comfortable with. The way I see it there is absolutely risk involved in investing in the stock market but it’s not 100% guaranteed. However, the risk of diminishing buying power of money in a savings account is 100% guaranteed.

This being said, there are scenarios where the benefits of liquidity in a savings account are advantageous, like where the cash can be used for things like an emergency fund or purchasing assets in the short term. You’ll have to make up your own mind where the risk exists for you.

Agree? Disagree? Have something to add? I’d love to hear your thoughts.

Disclaimer: The above is an opinion intended for information purposes only. Seek a licensed professional for financial advice.