You’re already over the biggest hurdle: You’re saving for retirement. And that’s incredibly important, because the sooner you start, the more time your money has to grow.
But there’s one more beginner’s mistake many people saving for retirement make: They never invest what they save. Or they sell their investments and opt for cash the minute there’s a negative newsflash.
Take the first woman in this article, for instance, who has $75,000 sitting in a savings account—she’s paralyzed because she’s not sure what to do with the money.
Or take Craig Wolfe, 61, who waited for the stock market to rebound after the downturn in 2008 and then sold all his stocks for cash. “Even over the years, with the market coming back, I never looked back,” says Wolfe, who is the president of CelebriDucks, a company that makes rubber duck collectibles. “I know it’s odd to keep so much money in cash and liquid CDs, but I can sleep at night.”
More than 25% of Americans stash their long-term savings in cash instead of investing it, according to a Bankrate study. At a time when the average money market account earns just 0.12%, that’s a lot of money to leave on the table.
Why All-Cash May Not Be Good for You
There are good reasons to leave some of your savings liquid. For instance, many in the financial services industry suggest having at least six months of living expenses in an accessible savings account in case of emergency. (And you have that covered, right?) As for the rest? It can be smarter to invest it.
RELATED: 7 Reasons You Need an Emergency Fund
Why? Because if you don’t, in a sense you’re actually losing money every year. “The cost of goods and services goes up every year by about 3% on average, as inflation,” says David Blaylock, a LearnVest certified financial planner™ in Fort Worth, Texas. “If you’re earning 1% on your money in a savings account, you’re arguably losing purchasing power every year due to inflation. Growth isn’t even a possibility.” In other words, the longer you stay in cash, the more your nest egg may shrink, relative to what it can buy you.