Should I Put My Savings in Stocks? A Comprehensive Guide to Making the Right Financial Decision

Is the Stock Market Right for Your Money?

I’ve put together this guide to help you figure out whether your hard-earned money belongs in a savings account or if it’s time to dive into the stock market. Let’s break down this complex decision into simple, actionable advice.

The Key Differences: Saving vs. Investing

Before deciding where to put your money, you need to understand the fundamental differences between saving and investing

As you can see, these aren’t interchangeable strategies—they serve different purposes in your financial plan.

When You Should Keep Your Money in Savings

Not all money should be invested in stocks Here are situations when savings accounts make more sense

1. You Don’t Have an Emergency Fund Yet

Before investing a penny, make sure you have a solid emergency fund.

“An adequate emergency fund” should be your first financial priority, according to Gordon Achtermann, a Virginia-based CFP. How much you need depends on your situation:

• 3 months of expenses: For couples with two secure incomes
• 6 months of expenses: For couples with less secure employment or one non-working partner
• 12 months of expenses: For individuals with less secure income

2. You’ll Need the Money Soon

If you’re gonna need the cash within the next 2-3 years, investing in stocks is more like gambling than investing. This includes money for:

• Down payment on a home
• Upcoming tuition payments
• Wedding expenses
• Major planned purchases
• Taxes due

As Dan Keady, CFP and chief financial planning strategist at TIAA, points out: “If you have a year and you’re buying a house or something, maybe I should invest in the stock market. That’s really gambling at that point, as opposed to saving.”

3. You Can’t Tolerate the Risk

The stock market can be a rollercoaster. If watching your account balance drop 20% would cause you severe anxiety or lead to panic-selling, stocks might not be right for you right now.

When You Should Consider Putting Savings in Stocks

Investing is better for longer-term money — money you are trying to grow more aggressively. Depending on your risk tolerance, investing in the stock market through exchange-traded funds or mutual funds may be an option.

Here’s when stocks make sense:

1. You Have Long-Term Financial Goals

If you won’t need the money for at least 5 years, investing in stocks gives you time to ride out market volatility. This is especially true for:

• Retirement savings
• College funds for young children
• Building wealth for far-future goals
• Legacy planning

As Chris Hogan, financial expert and author of “Retire Inspired,” says: “If someone’s beginning with investing, I would encourage them to really look at growth-stock mutual funds as a great starter way to get your foot in and really start to understand what’s going on and how money can grow.”

2. You’ve Already Built Financial Security

Once you’ve checked these boxes, investing excess cash makes sense:

• Emergency fund is fully funded
• High-interest debt is paid off
• You’re maximizing employer retirement matches
• You have adequate insurance coverage

3. You’re Trying to Outpace Inflation

With inflation targeting 2% (and recently running much higher), a savings account earning less than that means you’re actually losing purchasing power over time. The stock market has historically outpaced inflation significantly.

The Mental Checklist: Am I Ready to Invest?

Before moving money from savings to stocks, ask yourself these three questions. You should be able to answer “yes” to all of them:

Question 1: Do I have an adequate emergency fund?

Make sure you have 3-12 months of expenses safely tucked away in a high-yield savings account before investing.

Question 2: Am I committed to leaving this money invested for 2-5 years or longer?

If you might need the money sooner, it shouldn’t be in stocks.

Question 3: Can I weather the ups and downs of the market?

Be honest about your emotional reaction to market volatility. Will you panic-sell during downturns?

The Pros and Cons of Savings Accounts

Pros:

• Safety: FDIC insurance protects up to $250,000 per depositor
• Predictability: You know exactly how much interest you’ll earn
• Liquidity: Access your money whenever you need it (except CDs)
• Simplicity: No learning curve or research needed
• Low fees: Minimal costs to maintain

Cons:

• Low returns: Even high-yield savings accounts rarely beat inflation
• Purchasing power loss: Your money actually becomes less valuable over time due to inflation

The Pros and Cons of Investing in Stocks

Pros:

• Growth potential: Historically, stocks have returned about 10% annually over the long term
• Inflation protection: Good chance of outpacing inflation significantly
• Liquidity: Can sell stocks on any weekday if needed
• Wealth building: Greatest potential for long-term wealth accumulation

Cons:

• Risk: No guarantees and possibility of losing money
• Volatility: Values fluctuate daily, sometimes dramatically
• Time commitment: Requires research and monitoring
• Emotional challenge: Can cause stress during market downturns

A Balanced Approach: The Best of Both Worlds

For most people, the answer isn’t “savings or stocks”—it’s “savings AND stocks.” Here’s my suggestion for a balanced approach:

1. Emergency Fund: Keep 3-12 months of expenses in a high-yield savings account
2. Short-Term Goals: Use savings accounts, money markets, or CDs for goals within 1-3 years
3. Medium-Term Goals: Consider a mix of bonds and conservative stock investments for goals 3-7 years away
4. Long-Term Goals: Invest primarily in stocks for goals 7+ years in the future

Getting Started with Stock Investing

If you’ve decided some of your savings should be in stocks, here’s how to begin:

1. Open an account: Choose a reputable broker like Charles Schwab, Fidelity, or Interactive Brokers
2. Start small: Don’t move all your savings at once
3. Diversify: Consider starting with ETFs or index funds rather than individual stocks
4. Automate: Set up regular contributions to dollar-cost average
5. Get educated: Learn about investing fundamentals before making complex decisions

Mistakes to Avoid

Watch out for these common pitfalls when deciding between savings and stocks:

• Going all-in: Never put all your savings in stocks
• Investing emergency money: Your safety net should remain in savings
• Chasing hot trends: Stick to sound investment principles
• Ignoring fees: They can significantly impact your returns
• Timing the market: Consistent investing beats trying to time entries and exits

The Bottom Line: Should You Put Your Savings in Stocks?

The question “should I put my savings in stocks?” doesn’t have a one-size-fits-all answer. It depends on:

• Your financial situation
• Your time horizon
• Your risk tolerance
• Your financial goals

For most people, the answer is to keep some money in savings (particularly emergency funds and short-term needs) while investing other money (for long-term goals) in stocks.

As Keady wisely points out, real-life examples make this clearer: “Paying your child’s college tuition in a few months should be in savings—a savings account, money market account or a short-term CD.” That’s not money to gamble with in the stock market.

Remember, the greatest financial successes come not from picking the perfect investment, but from having a thoughtful strategy that balances security with growth opportunity.

Have you been thinking about moving some savings into stocks? What’s holding you back? I’d love to hear about your financial journey in the comments below!