Holding too much cash vs. investing could hurt your bottom line
Cash may be king, but when it comes to setting it aside for a rainy day, many may be missing out on the prospect of gaining thousands of extra dollars in interest.
A new NerdWallet study shows that the average American has slightly more than $32,000 in their accounts, and many don’t know how or don’t want to invest.
Of the participants in the study, 32% responded that they prefer to be able to access their money easily, so they choose to not invest. Another 28% said they didn’t know how to invest.
“They’re potentially losing tens of thousands of dollars in compound interest,” financial expert Chris Hogan told FOX Business’ “Mornings with Maria.”
The study found that the average in Americans’ accounts could return more than $140,000, if invested.
Hogan suggested that people may be afraid to invest because they have a lot of debt, but to avoid having that, he advised setting up an emergency fund.
“You want to have three to six months of expenses parked in a money market account, not a savings account,” he said.
NerdWallet describes a money market account as “a savings account that may come with higher interest rates than other savings accounts plus checks or a debit card.”
Hogan emphasized that having money in accounts and not investing any of it is doing a disservice to one’s self, and said that “money market accounts are going to give you a better rate of return.”
An emergency fund, Hogan added, is important in case there is an illness, job loss, or any other unforeseeable event that could result in debt.
“It won’t cause you to go back into debt, so definitely have three to six months of expenses parked in a money market account,” he said. “It will make you feel peace in areas you didn’t know were stressed.”