A former Wall Street trader said, “By saving money in a savings account, you lose wealth.”what to do instead

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Savings accounts are safe, but they are not great for building wealth.

People are usually pretty happy with keeping money in their savings accounts. Keep your savings safe and access your money anytime. But maybe we shouldn’t take it too lightly. Because one prominent financial guru says you’re actually losing wealth by saving money in a savings account.

This is what former Wall Street trader Vivian Tu says in a video on her social media channel. your rich best friendShe states that she cannot save her way to get rich because inflation makes living costs higher. Interest rates on savings accounts have not kept up with inflation.

Mathematics check out. Inflation was over 7% last year, with even the most generous savings accounts offering 3% to 4%. If you only have money in your savings account, you’re losing the battle against inflation. There’s nothing wrong with keeping some money in your savings account, but you don’t want all your cash there.

How can the fight against inflation be turned around? Here are Tu’s recommendations and why you should follow his advice.

make money work for investments

Tu used to work on Wall Street, so it’s probably not surprising that she recommended investing. As she puts it, “Your money needs to be invested because she can work 24/7 but you can’t.”

This is excellent advice, and if you haven’t invested yet, you should start now. Again, it’s all about math. The stock market produces an average annual return of about 10%. It makes it one if not the most reliable way to build wealth.

There has been a bear market, and most of 2022 has been a bear market. But in the long run, investing consistently in the stock market can pay off. Also, you don’t need a lot of money or knowledge to get started.

how to start investing

If you’ve never invested before, you may be wondering where to start. The first step is to get an investment account and you have several options.

• set up 401(k) with your employer. Many employers offer this type of tax-advantaged retirement plan to their employees. With this option, it’s a great way to invest.
• open Individual Retirement Account (IRA). This type of account also has tax benefits and can be opened through a stock broker.
• Open a personal brokerage account at top stock broker. This type of account is not tax efficient and is often used by investors after reaching the retirement account contribution limit.

After opening an account, you need to put money into it. For 401(k)s, contributions are generally deducted from your salary. You decide how much you donate from your salary. Some employers match your contributions up to a certain amount. If your employer offers this, it’s practically free money, so it’s almost always worth making the most of that match.

IRAs and individual brokerage accounts allow you to transfer money from your bank account.

The last thing to do is understand how to invest. Options vary by account. A 401(k) typically offers a variety of investment funds. With an IRA and individual brokerage accounts, you can invest in just about anything. Here are some of the best ways to invest.

• index fund: This type of fund tracks market indices such as the S&P 500 (the 500 largest publicly traded companies in the US).
• Exchange Traded Funds (ETFs): Like index funds, these contain a large number of stocks. Most brokers have plenty of ETFs to choose from.
• target date fund: A type of fund built around a specific retirement year. Investments are adjusted and optimized assuming the investor retires on the fund’s target date.

If you want something simple and effective, check out the S&P 500 index fund. The S&P 500 includes the largest companies in the stock market, so it offers competitive returns. Also, index funds tend to have very low fees, so you won’t overspend.

No need to throw away your savings account

To be clear, a savings account isn’t a bad thing. When you put your money in a savings account, there is no risk that it will temporarily depreciate while you are investing.

That makes a savings account a good place to put money you don’t want to risk, like an emergency fund. Another example is money for short-term savings goals, such as a down payment to buy a house in a year or two.

A savings account is not the right tool for building wealth and should not be used for retirement savings. To that end, you can get better results by investing.