Should You Be Saving or Investing in 2023?

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With a very uncertain economic landscape, stubborn inflation and a wonky job market, prioritizing personal finance goals might seem even trickier this year.

See: Here’s How Much Americans Have in Their Savings Accounts in 2023
Learn: 3 Things You Must Do When Your Savings Reach $50,000

While both saving and investing are productive ways to grow your money, the road better suited depends on factors including your age bracket, your risk appetite and your goals.

Saving means putting money aside and letting it grow — in essence, providing a safety net for future needs or goals.

Investing, meanwhile, enables you to build wealth via stocks, bonds, funds or crypto, but has inherent risks, especially in turbulent markets and unpredictable times.

Patient Investors Are Rewarded

According to some experts, such as Edward Lyon, chief tax strategist at Financial Gravity, investors shouldn’t let fears of a short-term market pullback discourage them from continuing their long-term plans.

“Research shows that most investors actually earn far less on their portfolio than the market itself returns,” Lyon said. “There are various explanations for that, but the biggest one is that they try to time the market — and in their effort to avoid the big downturns like the one they fear now, they also miss the big upswings when conditions improve. Riding out the downturns is hard. But history has always rewarded patient investors who stick to the plan.”

Building Wealth

Some experts argue that the path you choose to take shouldn’t be based on the current market conditions. Rather, you should make these decisions based on your ultimate need for the money.

For example, Jay Zigmont, founder of Childfree Wealth, says if you need to invest for retirement, do it.

“What does it matter what the market does this year if you won’t need the money for decades down the road?” he said. “Historically, the market has returned steady gains over time, regardless of what point you invest in the boom-bust-boom cycle.”

Paying Debt Should Be the Top Priority

According to Zigmont, in 2023 your priority should be paying off debt, as inflation is still high and interest rates are still rising. 

“Many credit cards now charge 20%-plus interest,” he noted, “and paying off your credit card is essentially a risk-free, tax-free return of that interest rate.”

Then, with your consumer debt paid off, the next step is ensuring you have three to six months of expenses saved in an emergency fund. 

“With recent layoffs and discussions about a recession, having a six-month emergency fund will help you in case you lose your job,” Zigmont said. “Try to consider your investments as something other than an emergency fund as recessions tend to impact both jobs and investments simultaneously.”

Building Wealth

If you have your debt paid off and an emergency fund, he said, then 2023 is just about following your financial plan. “Invest toward your goals and take advantage of down markets.”

Find the Right Balance

Finally, for some experts, you should be saving and investing in 2023. The key is to find a balance that works for you.

‘While this strategy is timeless, the uncertain economic landscape amplifies the need to find the right balance between the two,” said Bobbi Rebell, founder and CEO of Financial Wellness Strategies and author of “Launching Financial Grownups.”

Rebell recommends doing what she calls “savings check-ins” to make sure you have easily accessible savings should you need cash. For example, she said people need to be ready for possible layoffs.

“The same goes for unexpected expenses,” she said. “Savings should also be used to build up funding for shorter term goals where we don’t want to take the risks that are inherent in investing. If you know you have a big expense coming up, like a trip or a life event like a wedding, you don’t want to put that money in the stock market or another unpredictable investment.”

Building Wealth

Finally, while it can be discouraging seeing the financial markets under so much pressure, she said, if you educate yourself about the risks and feel comfortable putting money in the stock market, it often will be a decision you are glad you made years down the road.

“The upside of the rise of inflation is that it does also present some less risky ways to invest with higher returns,” she said, “including I-bonds and CDs, which can offer solid investment returns if you have even a medium-term investing horizon.”

Earn Money Off Savings

Several experts echo the sentiment, saying that while saving and investing simultaneously might be challenging, simply saving will not be enough to build wealth amid inflation and rising interest rates.

“Any saver loses money if the inflation rate is greater than the interest you’re earning,” said David McDonough, CEO of Commonstock. “So No. 1, check those interest rates and check that you’re banking with an institution that’s rewarding you for parking your savings there.”

But also put your savings to work and learn a lifelong important skill.

McDonough noted that the wealthiest 10% of Americans own a record 89% of all stocks. “I try to remind people that investing is a learned skill,” he said, “and even the greats are still cultivating it.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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