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  • 25Nov

    What is the safest way to invest your savings?

    Savings are of utmost importance for every individual making a steady income. In times of crises, your savings provide you with a safety net. Should you lose your source of income, or should some unforeseen misfortune strike, you have to fall back on your savings (and other assets) to be able to maintain your lifestyle.

    Which method of savings is absolutely safe?

    To be very blunt, there is no ‘absolutely safe’ investment method for your savings. That’s because every institution, every asset, every commodity and every currency on Earth can fail, their demand can wither away and even the most commonly perceived ‘safest’ investments can become worthless overnight if their issuer goes belly up.

    Only the Almighty can ensure ‘absolutely safe investments’. As a result, skillful investors take time and thoroughly weigh in all the risks before investing their hard earned money on any particular investment opportunity presented by mere mortals.

    Short-term versus long-term savings

    Even when you want to save up, you would need to decide whether you want to save up for the short-term or for the long-term.

    If saving for the short-term, let’s say when saving up for items like a car, or for your holidays, then you would ideally want to invest your funds where you can gain ready access to them. A savings account in a bank, or post office savings account/national savings and investment accounts (where the savings bear government guarantees, since the bank itself is state owned) are generally very good choices. Deposits made in such institutions are relatively safe, they are sufficiently ‘liquid’ or easy to withdraw whenever you like, and they also pay a modest interest to customers who desire such. 

    For the long haul, you may want to save up for life after retirement, for children’s tertiary education, or for rainy days, in general. In such cases, you may not need to withdraw your deposits frequently. Many ‘notice accounts’ or variations of it, around the world, allow investors to deposit funds in such accounts for the long term with the stipulation that advanced notification of withdrawal must be provided to the bank, according to the rules and regulations of the bank. These accounts pay higher interest rates, and are highly safe picks.

    What are the safest investment opportunities for your savings?

    Though there are no absolutely safe investments, some investments are inherently more risky than others. The stock market is a prime example of a ‘high risk, high return’ investment opportunity, while savings account deposits, ‘post office savings bank’/’national investment and savings’ accounts, or government bonds and securities are examples of ‘low risk, low return’ opportunities for investment.

    To be very blunt, there is no ‘absolutely safe’ investment method for your savings.

    To be very blunt, there is no ‘absolutely safe’ investment method for your savings.

    Commodities like gold, platinum, palladium and silver are also considered safe havens for more adventurous investors. During times of upheavals in the stock indices, they would want to own commodities that are worth their weight in gold, quite literally. While relatively safe amongst commodities and widely acceptable around the world in lieu of some of the common internationally traded currencies, the prices of gold, platinum, palladium and silver are benchmarked in US dollars, and thus, susceptible to swings in a variety of factors, not least of which is the strengthening or weakening of the US dollar against other currencies and ‘safe heaven’ commodities.

    Another common means of low-risk savings is life insurance. In the event of a family member’s demise, the family will be guaranteed a lump sum in compensation. Some insurers go a step further, and provide interests on top of the lump sum. The optimal insurance selection process is a rather complicated procedure deserving a separate exposition.

    The verdict

    If you want to save up for some short-term necessity, invest in a savings account or some account where the deposits are insured by the government, while allowing you to withdraw funds at short notice.

    If you want to save up for some long-term necessity, invest in ‘notice’ accounts which are highly dependable and allow withdrawals upon advanced notifications. Usually, a good alternative to such accounts for similar long-term savings plans is investment in government issued bonds. The government could be the national or provincial/state governments, but so long as the fiscal track record of the government exhibits great prudence, one can safely estimate that your investments are safe.

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