Opening a checking or savings account is often considered the first step to becoming financially responsible. From that point on, though, banking services can easily become something people take for granted and never explore again until they need it in some other form such as refinancing their mortgage loan.
Banks provide valuable benefits, such as financial security and convenience. The fact that seven million U.S. households remain unbanked should remind us to be grateful for these services.
Investment conversations that have captured the hearts and minds of people seem to be more on current trends or new technologies.
However, most common investment practices such as buying low-cost index funds are rarely discussed in these circles due to a lack of excitement around them.
For example, a friend is more likely to want to discuss meme stocks than the latest cryptocurrency. These stories emphasize dramatic rates of return and downplay the risk and other personal financial considerations.
It turns out that Millennials, who are still learning how to navigate the world of finance now have more opportunities than ever before. However, this also means they face many pitfalls along their journey as well which might not be evident at first glance.
It’s important to consider the roles of bank accounts and investment accounts before any group members buy or hold onto a big amount of cash.
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When Should You Choose a Bank Account?
Most people have a bank account to hold their short-term funds. Banks provide security and insurance for these deposits, so they don’t disappear if the company fails or goes bankrupt.
Banks are the cheapest and most convenient way to access money as compared to alternatives such as check-cashing services.
If you have a positive checking account balance at the end of each month, transferring it into savings can help grow funds for designated purposes in both short and medium terms.
It is easier to save money when they are held apart from your day-to-day spending cash because psychologically people feel better about saving their own money rather than having spent more on something else.
If interest rates aren’t at rock-bottom levels, consider high-yield savings account to make the deal even sweeter. It will be great for compounding growth too.
Bank Account Benefits That Fall Under the Radar
As a result, inertia often sets in after the initial bank account setup. People may stay with that same financial institution for decades if it means avoiding the hassle of identifying and moving their accounts to another one. After all, checking is checking.
You might not realize that your bank offers more than just a place for the safekeeping of your money. There are three main benefits to being part of an established banking relationship, and I can help you take advantage of them all.
The First Category:
When a customer needs assistance with something that’s outside of the bank’s transactional role, they may seek it from another financial institution.
National banks and regional credit unions have lines of business that extend beyond their primary roles as well. For example, someone who is searching for a home might benefit from an extended relationship involving discounted mortgage rates instead of going to the conventional banking option first because these line-of-business savings would be better than other options out there.
The Second Category:
A quick way to make travel planning a lot less stressful is by finding a bank that helps with foreign currency exchange.
This means easy access and lower transaction fees when you need your money during vacation or business trips abroad. Some banks don’t prioritize this service, which makes it worth looking for one who does if international travel is important to you.
The Third Category:
This category is the least known to many young adults. In this category, it’s important for younger generations not to get penalized on a regular basis while using their bank accounts.
This can be done by minimizing fees and penalties through actions like withdrawing money at third-party ATMs or avoiding overdrafts due to ill-timed transfers and withdrawals.
The Consequences of Bank Inertia
People often remain in the bank that was chosen for them by their parents, even when they know there are better options available.
This is because traditional bank account feel safe and comfortable to many people who don’t want anything complicated or confusing. However, young adults should consider more innovative investments if they wish to grow their money over time.
In this world of stock market fluctuations, bank account balances are a reliable way to save money. The amount in the balance looks nice and it is available day-to-day without any worry about Wall Street’s whims.
It’s good that one has an option like savings account for their monetary needs as well as investments because otherwise, these doubts can have real consequences on our lives since we don’t always know what goes behind the scenes with changeable markets or how they will affect us down the road.
When We Should Choose an Investment Account?
Many young adults view investment accounts as a means to rapidly generate wealth, instead of considering the various other benefits that come with it.
They may have been provided information by sources who don’t understand investing well themselves and mixed messages occur because there is no one unified resource for this knowledge.
The main issue with this knowledge is that it lacks information on how risk should be calculated and when to use the money for investing.
As people are trying to grow their retirement savings by day-trading, it can be dangerous for them financially. It is possible that even the less risky investment strategies have some degree of risk attached to them as well though so someone should do research before investing in anything.
Young adults can invest successfully in their lives by thinking through what level of risk they are willing to accept. To do so, young adults should consider when they will want to use the money sitting in a bank savings account.
Some young people are not putting their savings in the stock market because they may need it at any time, which makes this investment too risky.
When someone is saving money for a future goal that’s far away, as travel in six months or next Christmas, it might be tempting to put the savings into an “unproductive account.”
But if you do this and there’s a stock market dip at the same time as your trip comes up, say no one wants flights right before they go on sale or hotel rooms when everyone else has booked theirs you could lose out big-time.
When they are thinking about what to do with medium and long-term funds, the outcome may look different.
The Advantages Of Investing In The Stock Market
Millennials are dealing with student loan debt and the question of how to afford a home, but they have common sentiments about making their money work for them.
In view of their objectives, the stock market may seem like a viable candidate for achieving this goal. However, they feel paralyzed about whether or not chasing higher growth is a mistake.
Understanding how short term time horizons differ from medium- and long term ones is the key to investing, which allows us to contribute money into tax-advantaged Individual Retirement Accounts (IRA) or taxable accounts.
If you want to buy a home by the time you’re 35, but don’t have enough money saved yet, it’s not worth panicking over market fluctuations. Just keep investing your savings and ignore any news about stocks for at least eight years.
Her ultimate goal is to have the money ready in time for a home purchase, so she just needs enough funds saved up. She should plan on having them around two years before her desired date because that’s usually how long it takes until stocks are back at their initial value after dips.
If you plan to use the money in 20+ years or have no specific goals, a low-cost diversified investment such as an index fund can be appropriate.
This investor can sleep soundly and stay the course with his money because he knows that the stock market will recover over time.
The Risk Associated With Misjudging Your Tolerance for Stock Market Investing
For some people, following this time-driven investment approach is easier said than done. It may be easy to stick with it while the stock market keeps going up but when there are long periods of dips in the market, an individual might feel confident that they won’t regret not investing now and waiting for a better price later on down the line.
Stock market investing can be a risky undertaking, but if you are careful and do your research it is possible to earn some money. If you know yourself as someone who is easily stressed out by watching their stocks lose value, it is important to calculate your loss & gains if you are holding one of stocks, if not then it might actually be better to invest small portions of your portfolio into bonds instead.
The stock market is an amazing place to make money, but it requires patience and a long-term view. If you don’t have these qualities in your personality, then keep your money in the bank or another less risky investment that doesn’t require as much time and effort.
However, if you’re too conservative when investing for longer periods of time than 10 years – there’s something wrong with this tactic because the market will rarely stay flat forever.
Young people should be more aggressive in investing for retirement. Target date funds and Robo-advisors simplify the process of saving money, which helps minimize emotional reactions to market downturns and decreases the likelihood that young investors will sell at incorrect times.