Getting comfortable with investing is a process that, for me, has been many years in the making. When I first started buying stocks, I was scared of market crashes and spent many nights wondering whether I was just throwing my money away.
But now, years later, I’m able to approach investing with a lot more confidence, and frankly, I’m just plain better at it than I was a decade ago. And while part of that boils down to expanding my financial knowledge, a big reason I now consider myself a better investor than I used to be comes down to having a healthy savings account balance. Here’s how boosting my savings has helped me do a better job of buying stocks and maintaining my portfolio.
1. I don’t have to touch my investments when they’re down
Through the years, I’ve encountered my share of unplanned bills — like the time I had to replace my car’s transmission or the time our water heater went kaput. Because I have a decent amount of money tucked away in savings, I’ve never had to pull money out of my investment account to cover unanticipated expenses. And that’s prevented me from taking losses by liquidating investments at the wrong time.
2. I have money on hand for when stocks go on sale
It’s never a good idea to tap your emergency fund for investing purposes. Rather, that cash should be there for when unplanned expenses strike. But I have money in savings outside of my emergency fund needs, and at times, that cash has helped me scoop up discounted stocks when the market has taken a tumble.
3. I can take on a little more risk knowing I’m covered for emergencies
I don’t consider myself an overly aggressive investor, and at times, I can be a bit risk-averse. But one thing that’s helped me take on a bit more risk through the years is the knowledge that I have a decent pile of cash waiting for me in the bank. That way, if a more speculative investment doesn’t pan out the way I want it to, and I end up losing some money, it won’t stop me from paying the bills or covering unplanned expenses when they happen to creep up.
Don’t neglect your savings
Given what savings account are paying these days interest-wise, you may be inclined to leave as little money as possible in the bank and pump all of it into your brokerage account or retirement savings plan instead. But having cash at the ready for emergencies is really important, and without it, you could wind up taking on costly debt.
Similarly, you could wind up having to cash out investments when they’re down to scrounge up money or miss out on lucrative opportunities by not having adequate cash reserves, so don’t make that mistake. Instead, stick enough money into a savings account to cover a minimum of three months’ worth of essential bills. What you lose in returns on that money, you might gain in both opportunity and peace of mind.
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