Ways You’re Gambling With Your Savings
Ways You’re Gambling With Your Savings, Common moves such as loading up on company stock can leave you vulnerable to losses. Sometimes we think we’re doing our finances well when those money-saving behaviors are really compromising the security of our savings. Sure, you know that following a budget and regularly depositing money into a savings account will build up a nice buffer in case you fall on hard times, but are you also doing things that could potentially put a big hole in that safety net?
Below are some of the behaviors that might appear to be beneficial to your bank account at first glance, but are really setting it up for a big loss:
1. Holding onto that low-interest account.
Yes, your account may not be earning anything, but certainly you aren’t losing money, and at least it’s safe in the bank, right? Well, if your money is sitting in a low-interest deposit account, you are, in fact, losing money.
Inflation is the gradual increase in the cost of goods and services year over year. So if the inflation rate is 2 percent, for example, an item that costs $1 today will cost $1.02 in a year. That also means that if your savings aren’t growing at the same rate, that money is essentially losing value each year. It’s tough to find interest-bearing savings accounts that match the rate of inflation these days, but keeping your money in one that earns little-to-nothing at all guarantees your future purchasing power will be decreased by that much.
2. Loading up on company stock.
Companies often offer employees stock options as an added perk, and for many, company stock makes up 20 percent, 50 percent, or even more of their retirement portfolio. After all, it’s essentially free money.
Current and former Facebook employees will tell you that holding onto their company’s stock was the smartest financial move they could have possibly made. Those who used to work at Enron might disagree with that sentiment.
Consider how much of your financial stability is dependent on your employer–you’d probably be in a tough spot if you lost that paycheck, but your retirement savings too? Banking your nest egg on the future success of your company puts your financial well-being in a very precarious position.
Most financial advisors won’t recommend allocating more than 5 percent of your money toward any one investment. If you really love your company and believe its value can only be headed upward, never let your stake in company stock exceed 10 percent of your total portfolio.