1. Save
Risk profiles in investing give an idea of how much risk you are exposed to. We look at 6 profiles from savings to very offensive, what does that mean?
The simplest, most defensive form of investment: savings
Investing is a way to grow your money, but it also comes with risks. The simplest form of investing is saving. Saving is a defensive form of investing, which means the risk of loss is relatively low. But what exactly are the risks, benefits and consequences of saving? In this article, we discuss all the facets that are relevant.
Risks of saving
- Lost interest: Interest rates on savings accounts are currently very low. This means that your savings are actually becoming worth less due to inflation.
- Adverse returns: Savings accounts do not guarantee returns. Interest rates may fall further in the future.
- Credit risk: In rare cases, a bank may fail. In that case, you may lose some or all of your savings.
Benefits of saving
- Safety: Savings is a safe form of investment. The chances of losing money are small.
- Liquidity: You can always access your savings.
- Simple: Saving is easy to understand and implement.
Consequences of saving
- Lower growth: Savings is a defensive form of investment. Your money grows at a slower rate than with other forms of investment.
- Inflation: Inflation actually makes your savings worth less.
- Lack of diversification: Savings is a form of monoculture. You invest all your money in one asset class.
Is saving the right form of investment for you?
Whether saving is the right form of investment for you depends on your personal investment profile. Are you risk-averse and looking for a safe way to grow your money? Then saving may be a good option. Are you looking for higher returns and willing to take on more risk? Then there may be other forms of investment that suit you better.
Tips for savers
- Compare savings accounts: There are big differences between savings accounts. Compare interest rates and terms before opening a savings account.
- Make a savings plan: Decide how much you want to save and by when. This will help you meet your savings goal.
- Diversify your investments: Savings is a good foundation, but don't invest all your money in savings accounts. Invest in other asset classes as well, such as stocks and bonds.
Savings is the simplest and most defensive form of investment. It is a safe way to grow your money, but it does not guarantee returns. Interest rates on savings accounts are currently very low, so your savings are actually becoming worth less due to inflation. Are you looking for a higher return? Then there may be other forms of investment that suit you better.