Jump to content
  • Get a free account

    The Most Active and Welcoming Alternative Finances Community
    Join and Discover the Real Ways to Manage and Grow your Money.

  • Daniel#MD

    Do I Really Need To Save Money Before Investing?

       (0 reviews)

    The idea of investing is exciting to most people. We want to dig in, get our feet wet, and start making some money. But, unfortunately, new investors I talk to are often making a huge mistake when they start.


    Instead of having a healthy nest egg stashed away for a rainy day, new investors often take whatever excess cash they have and immediately place it all in whatever investment they wish to make.

    This sometimes has no ill effect. Investor continues to invest their excess cash in the stock market, and life is amazing. The profits are rolling in, and their net worth continues to rise.

    However, people will run across some expense that wasn’t planned for in most cases. And because they have invested most of the excess capital they have in the stock market, they are stuck with only a couple of options, neither of which are optimal.

    They can borrow the money, whether it be via a line of credit or credit card, to pay the expense, or they can pull it out of their investments.

    Why saving before investing is absolutely crucial

    If an investor chooses to go the route of taking out debt to pay off the expense, as much as they think they are getting ahead with their investments, they are actually falling behind.

    If you have to pay for that blown radiator repair with a credit card, you’re more than likely paying 19.99% to hold that balance.

    Considering the average return of the stock market is 7%, you’re actually losing money holding that balance on your credit card. Maybe not on your whole portfolio, but on the amount of the expense you are.

    Now, not all loans are at that extreme of an interest rate, and if you’ve got a line of credit with an excellent interest rate, it actually may not be a bad idea to invest the money rather than pay off debt. You see this a lot with things like mortgages, depending on interest rates.

    The other option you have is to pull money out of your investments to pay the bill. To understand why this is a bad idea, you have to know a little bit about how the stock market works.

    Many investors run into a lot of trouble thinking they are investing for the long term by holding an investment for a year or two.

    This couldn’t be farther from the truth.

    The stock market is absolutely unpredictable over this time frame. However, the stock market has been statistically proven to provide excellent returns over long periods of time. It’s hard to give an exact length, but I would say at the absolute minimum 5 years.

    When you are forced to sell assets in your investment portfolio, you haven’t held for long to pay off debt, and you are exposing yourself to more volatility than you should.

    This may not always be a detriment, as you may sell when the market is at an unnatural high. But it can also work the other way, and you will be forced to sell when your stocks are trading at a low position.

    So now that I know that I should have some money put away, what is the magic number?

    I get asked this a ton too, and the answer is that there isn’t a number. The amount you should have set aside for an emergency fund depends on a multitude of things.

    I suggest spending half an hour or so and totaling all your monthly expenses, plus anything that you believe may happen in the future. These can include:

    • Your mortgage
    • Your utility bills
    • Your groceries
    • Vehicle repairs (may vary based on the age of the vehicle)
    • The debt you currently have and the minimum payments on them

    The key here is to dig really deep. Leave no stone unturned and figure out exactly what it costs you to live comfortably today.

    After you’ve figured all that out and maybe added a little extra just for comfort, you need to factor in your employment. Way back when I was building my emergency fund, I asked myself the following questions about my job:

    • What are the chances I lose this job?
    • Am I in an industry that is known to have wild swings of employment due to economic conditions?
    • If I were to get hurt, what does my employer or benefits package cover?
    • If I were to lose my job, how long can I reasonably expect to wait until I get another one?

    All of these questions have a huge impact on figuring out exactly how much you need to save. For me, I worked in the oil and gas construction industry. Job security is extremely volatile, and the highs are very high, but the lows are cripplingly low. So I knew that if I lost my job in an economic downturn, it could take months to get a new one.

    For that reason, I decided I would try and save up at least three months' worth of expenses before placing money into my brokerage account. I figured with the money received with unemployment insurance, that emergency fund would last me a minimum of 5 months.

    What about investment opportunities that pass me by?

    This is a widespread concern with new investors. They are often overwhelmed by FOMO (Fear Of Missing Out) and want to jump in right away.

    To that, I simply say don’t worry about it. You may be kicking yourself waiting a year to build your emergency fund because you missed investing in a stock that has doubled its value in that same year. But there will be other opportunities. Many others, in fact.

    Keep in mind that I am not advocating refraining from investing absolutely anything while saving up for a rainy day. In fact, while I was saving up my emergency fund, I was still contributing to my RRSPS (401k for you folks down in the United States) simply because it was extremely beneficial for me to do so. This is because, at the time, my employer matched a certain portion of my contributions.

    You can roll the dice if you want to

    As humans, we have a natural tendency to lean towards the shortest route possible for the highest reward. However, saving nothing and investing immediately does have its benefits.

    If you don’t run into any hardship in terms of employment or other financial burdens, you’ve got that extra time of capital appreciation in the stock market that those saving up for a rainy day would never have.

    But, it is a risk, and risks sometimes translate into negative consequences.

    The choice is up to you, and regardless of the route you choose, the fact that you are thinking about investing your money is awesome.

    I hope this piece gave you an idea of how much you need to save before investing your money, and I wish you all the best of luck in the future!

    User Feedback

    There are no reviews to display.

  • Forum New Topics

  • Members


  • Posts

    • Brent Crude Oil is on the up as G7 price cap deals blow The price of Brent Crude oil is once again on the rise, after a slow and steady decline during early to mid November bottomed out at $76.28 per barrel on November 26. Since then, the price has been increasing, and today Brent Crude Oil (WTI) is trading at $81.41 per barrel which is a two week high. This could partly be down to the price cap for oil purchases from Russia having been set by the European Union at $60 per barrel. This was set late last week in the form of a limit on the price of Russian seaborne crude and therefore constrain revenues the Kremlin makes from the commodity. However, the market price of crude oil was at the time around $79 per barrel, meaning that the Russian oil companies refused to sell oil to European Union member states which adhered to this price cap, because it is far below the market value. As a result, demand increased as the potential supply of crude oil to Europe could be affected by the price cap in which European oil purchasers would be expected to adhere to a policy of paying approximately $20 per barrel less than market value for oil imported from Russian oil giants, an offer which of course has been declined by said oil giants as there is no way they will sell oil to commercial clients for three quarters of its real value. At the end of last week, Russian energy industry had issued a warning that an oil price cap could wreak havoc on the energy markets and push commodity prices even higher. They weren't wrong. According to an official document from the European Union, this price limit would be subject to regular review in order to monitor its market ramifications. The document stated that the price should be “at least 5% below the average market price" however the $60 that the cap is currently set at is more than 20% less than the average market value of crude oil. Given that Russia is an OPEC nation and one of its major national industries is the extraction, refinement and export of raw materials for energy generation, there is no likelihood that Russian energy firms would accept this price for oil products. The raw materials that the Russian economy relies so heavily on are consumable commodities, traded on global exchanges and with the ability to be used as collateral to back economic asset classes and against national debts. These are liquid gold and therefore will be valued and treated as such. Volatility in the oil market is here once again. VIEW FULL ANALYSIS VISIT - FXOpen Blog... Disclaimer: This forecast represents FXOpen Companies opinion only, it should not be construed as an offer, invitation or recommendation in respect to FXOpen Companies products and services or as financial advice.
    • GBP/USD Rallies Further, EUR/GBP Takes A Hit GBP/USD started a fresh increase above the 1.2150 resistance. EUR/GBP failed to stay above the 0.8600 support and declined towards 0.8550. Important Takeaways for GBP/USD and EUR/GBP The British Pound started a fresh increase after it broke the 1.2050 resistance against the US Dollar. There was a break above a major bearish trend line with resistance near 1.2000 on the hourly chart of GBP/USD. EUR/GBP started a fresh decline after it failed to surpass the 0.8675 resistance zone. There was a break below a major contracting triangle with support near 0.8615 on the hourly chart. GBP/USD Technical Analysis The British Pound found support near the 1.1920 zone against the US Dollar. The GBP/USD pair started a fresh increase and was able to clear the 1.2000 resistance zone. There was a also a break above a major bearish trend line with resistance near 1.2000 on the hourly chart of GBP/USD. The pair even surpassed the 1.2150 resistance zone and the 50 hourly simple moving average. GBP/USD Hourly Chart Recently, there was a minor downside correction from the 1.2300 zone. The pair dipped below the 1.2200 level. A low was formed near 1.2134 on FXOpen and the pair started a fresh increase. There was a clear move above the 1.2250 resistance. The pair surpassed the 76.4% Fib retracement level of the downward move from the 1.2310 swing high to 1.2134 low. It is now trading above the 1.2310 swing high. On the upside, an initial resistance is near the 1.2350 level. It is near the 1.236 Fib extension level of the downward move from the 1.2310 swing high to 1.2134 low. The next main resistance is near the 1.2400 zone. A clear upside break above the 1.2400 and 1.2420 resistance levels could open the doors for a steady increase in the near term. The next major resistance sits near the 1.2500 level. On the downside, an initial support is near the 1.2300 level, below which it could test the 1.2250 support. The next major support is near the 1.2230 level and the 50 hourly simple moving average. Any more losses could lead the pair towards the 1.2200 support zone. VIEW FULL ANALYSIS VISIT - FXOpen Blog... Disclaimer: This forecast represents FXOpen Companies opinion only, it should not be construed as an offer, invitation or recommendation in respect to FXOpen Companies products and services or as financial advice.
  • Create New...