Let’s say you’ve made some money from your investments and feel that it’s time to exit your winning positions. Now, you’re ready to achieve the short-term goals you’ve set. But there’s a big question you should ask yourself before parking this cash in your savings account. What are the best ways to save money made from stock investments?
You can’t just go out and spend all your hard-earned wealth on luxury watches and sports cars. After all, the U.S. Government always wants its cut. Therefore, it’s essential to save as much money as you can by making intelligent decisions. And there’s nothing more brilliant than understanding how to maximize the wealth that’s already in your bank.
There are two things to consider when it comes to saving money made from stock investments.
First, you should determine where you want to store your money. It should be assessable when you need it but not so readily available that it tempts you. After all, these earnings should go toward your short- and mid-term goals.
Second, you should know what to do with your investment earnings. If you can do without the cash, it might be better to benefit from the residual earning power of your investing account.
There are eight uncomplicated ways to save money made from stock investments, which involve:
Now that interest rates are low, savings account APYs are as well. However, that doesn’t mean you shouldn’t look for the best rate. You have many options on how to save your money, both online and in person. But where should you park your money?
Brick and mortar, or “traditional” banks, offer those with the best relationships a higher interest-bearing savings account rate. A higher rate of 0.40% to 0.50% APR is ordinary for VIP clients at traditional banks like Wells Fargo and Chase. These prices keep brick and mortar banks competitive with online saving account rates.
However, if you have yet to establish a banking relationship, you’ll likely earn a lot less. And when you thought 0.40% APR was low enough, it turns out most “retail” bank accounts pay around 0.01% interest on savings accounts. Add in maintenance fees, and your investment earnings will decrease rather than increase. Not ideal.
Another option is to go with an online savings account. The top ten online banking platforms have savings account interest rates above 0.60% APY. For comparison’s sake, that’s more than you’d earn storing your cash away with a Certificate of Deposit. Some online banks even pay up to 1.30% APY.
Whether you should select a traditional bank account or an online bank account depends on your needs. If you plan to access your money regularly, then it’s nice to have it at the same traditional bank that you use daily. However, if you want to save your investment earnings until you need the funds, then an online bank will keep your money out of sight.
With that in mind, there is another option to save money you make from a stock investment. But before storing your money here, you must decide how risk-averse you are with your funds. If you would like to save more income on your earnings, then make your money work harder for you.
Now, if you are the more adventurous type and prefer technology, one option you have is to park your money away in a cryptocurrency stablecoin. You can buy and save digital currency pegged to the U.S. dollar in your wallet (one of several cryptocurrency apps.)
In return, you earn around 8% APY and receive daily interest payments. While there’s always a risk with cryptocurrencies, many services are authentic. For instance, IBM built AnchorUSD, a crypto savings account that backs each stablecoin with one USD in a regional bank. The bank is even FDIC insured up to $250,000.
So, you now know several ways that you can save money, depending on your preferences. The next step is to plan how you’ll take your investment earnings and save consistently. Here are some ideas on allocating your investment earnings to keep more of the money that you’re earning.
Investing provides an opportunity to invest for both your short and immediate-term goals. If you know that you need investment earnings over the next three years, a savings account provides the access and liquidity you need.
Yet, what if you’re planning to use your stock market earnings in the next three to ten years? In that case, you have several options for optimizing the amount you save from previous investments. Here are several strategies you can try.
Because of compounding interest, the ideal way to save money from stock investments is by reinvesting your earnings. Reinvesting dividend payments or stock profits are two simple ways to grow your investment or savings account. Yet, the money you reinvest isn’t liquid like cash in a savings account. Therefore, you should consider how soon you need to use your money.
After selling stocks for a profit, you can take the cash and diversify into different assets instead of reinvesting in the stock market. Investment options include cash or bonds for funds you want liquid after a set period, or you can invest in property or real estate. Although diversifying isn’t “saving,” there’s potential to grow your stock earnings further while you wait to use your cash. Your assets may even generate passive income for you, which is always lovely.
The final option is to take your earnings in cash and hold it regularly. Although you’re not generating additional money by storing your money away, at least you’ll have it accessible when you want to pay for short-term goals. In certain circumstances, holding cash makes the most sense. It depends on your current needs and life goals.
In conclusion, there are several best ways to save money made from stock investments. Some require you to stay in the market. Other ways to save money include:
By finding a saving and investing strategy that works for you, you’ll access money to accomplish your immediate-term goals.
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