Whenever you are considering purchasing property, preparing grounds for your offspring or planning your retirement, you will come to the idea of savings. It is important to understand the definition of savings. Unlike capital, which is mostly used for the execution of a certain plan, savings are funds placed aside to ensure safety or be used for an acquisition of a certain item.
There are three rules to keep in mind when arranging your savings efficiently.
The first one is that you should protect from inflation. If you just keep your money under the mattress, the value of your savings will diminish with time, so your size of savings should grow more than the real inflation rate.
The second important aspect is to have as tight sleep as possible. Placing all of your savings into stocks may, of course, result in generous profits, but keeping in mind the market fluctuations, it is certain that you will worry more about the safety of your savings than the extension of them.
Finally, the liquidity of your savings is a vital aspect, which is highly neglected. Real estate property may be a good form for your savings because it not only can increase in value but also can be rented out while it still remains yours. From the other angle, savings sometimes have to be used to cover some unexpected expenses and if you have all of your savings tighten up in real estate, it may take months before you are actually able to turn them into cash.
Considering the aforementioned 3 rules, there are not too many options to choose for your savings. Most of the people would go for bank deposits in savings account, which could provide an annual return of 4 to 5%. This form of savings is very accessible, while many people could doubt that the interest rate can fight the devaluation of the currency.
When keeping your savings not in cash, but in cash equivalents, there are much more lucrative opportunities, although there is a slightly larger degree of a risk too. One of the most famous and widely used cash equivalent is gold.
When looking at the above chart, it is possible to see that if one had placed his savings into gold, in the early 2000’s he would not only protect from the inflation but nearly had a tripled the savings during 10 year period. Getting read of gold savings in the end of 2011 would result in a quadruple size of savings.
In addition to this, gold doesn’t have dramatic movement, as you can see from the chart, there were almost rocketing moments, as well as the price wasn’t dropping enormously. The general trend of the gold is upward and historically gold was always treated as a highly safe equivalent of cash.
As for the liquidity, gold can be converted into money within a matter of seconds. Liquidity depends on the chosen methodology for keeping funds in gold. There are numerous ways of doing it, ranging from psychically buying gold coins, bullions, internet certificates or opening a gold account with the best forex brokers, converting your funds into gold and enjoying a safety heaven of potential growth.
While gold is certainly one of the most superior methods of arranging your savings, we would still recommend you to keep at least 20% of your savings on a regular savings account, so you don’t have to get read of your metal assets every time you face a little financial difficulty.
Go one step further with these related books:
- Forex For Beginners
- A Three Dimensional Approach To Forex Trading
- Understanding Price Action: practical analysis of the 5-minute time frame
- Quantitative Trading with R: Understanding Mathematical and Computational Tools from a Quant’s Perspective
- The Death of Money: The Coming Collapse of the International Monetary System
- Economics of Monetary Union
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