When achieving your financial objectives, you can take several different paths. One of the key decisions you will need to make is whether to open a brokerage account or stick with a savings account. Both options have their benefits and drawbacks, and the best choice will depend on your particular goals and circumstances.
What is a brokerage account?
A brokerage account is a type of account that allows you to invest in stocks, mutual funds, bonds, and other securities. With a brokerage account, you can invest the money in a wide range of financial products, including individual stocks, exchange-traded funds (ETFs), and more.
What is a savings account?
A savings account is a type of bank account that helps you to withdraw and deposit money while earning interest on your balance. Savings accounts are popular for people who want to save money and earn a small amount of interest.
Which option is right for you?
The decision between a brokerage account and a savings account ultimately depends on your financial objectives. Here are a couple of scenarios where one option may be more suitable than the other:
- Time horizon
Time horizon refers to the length of time you have in mind to materialise your financial goal. If you have a long-term time horizon, such as retirement savings or your child’s education, investing in mutual funds and such investment avenues through a brokerage account would be beneficial than parking your savings in a savings account. If you have short-term goals, like buying the latest gadget or funding a short trip, a savings account could help you to save the necessary amount to actualise your goal.
- Liquidity needs
Liquidity means the ease with which you can convert your investments into cash. If you anticipate needing to access your money quickly, a savings account may be more suitable. Savings accounts allow you to withdraw money without any penalty easily. However, a brokerage account may be better suited if liquidity is not your primary concern at the moment.
A savings account may be the right choice if you are looking for an easy and low-risk option for storing your money. However, a brokerage account may be better if you are willing to take on more risk and potentially earn higher returns by utilising the account to make prudent investments in the market.
Ultimately, the best way to achieve your financial objectives is to create a diversified portfolio that includes savings and investments. By spreading your money across different financial products, you can reduce your risk and increase your chances of achieving your financial goals.