Saving vs Investing. What’s the big difference?
Give yourself the knowledge about how to start thinking differently about your money. Understand the basics of saving vs investing. They both have a role to play in your financial security.
A note upfront. This article doesn’t promise you the lifestyle of your dreams, with a sports car in your garage and caviar on the dining table.
Don’t get us wrong, though. We’re not saying you can’t achieve wealth and security with the right financial decisions and hard work.
What’s the downside between the two?
For every up, there’s a down. Newton taught us that hundreds of years ago, and it’s equally true today. There are downsides to both savings and investing.
Let’s first look at savings:
- Saving takes discipline and commitment. Suppose you don’t secure your cash well and instead give yourself easy access to it. In that case, you may be squandering your money on impulsive behaviours, like that stylish new outfit you’ve just seen in the mall.
- Savings will not earn you high interest. If you factor in inflation and currency fluctuation, may leave your capital lower than when you deposited it.
- You’ll miss out on market gains and potentially substantial compound interest.
Now let’s take a look at the negatives of investing:
- Investment accounts are related to market volatility. What that means to you, the investor is that the value of your investment can easily be affected by an economic crisis or market problems.
- There is a higher risk that you may lose all or part of your capital for investment if you invested in property and the developer goes bust.
- Remember, a fund’s past performance doesn’t guarantee its future performance, so you must think long before committing your hard-earned money.
- You also may pay a penalty for withdrawing the money too soon, depending on the conditions of your investment. Investment accounts usually attract higher fees.
- You’ll also usually need a minimum lump sum deposit for an investment account.
Remember, the number one rule in deciding what wins in savings versus investing is what you, the one with the money, want to do with it and how prepared you are to do that.
So, consider your risk tolerance, financial requirements, and when you may need to access the money.
What is the difference between saving vs investing?
Saving is when you put money away in a safe place, like a bank account, to use in the future. The money could be a rainy-day fund or the beginning of a deposit on a new house.
Investing is when you place your money in an investment for a goal, like retiring, hoping that your money will grow. Remember, there’s no safety cushion with investing. Generally, the higher the risk, like a share or property portfolio, the higher the potential reward. But it’s also vice-versa.
What are the benefits of saving and investing?
The benefits of Saving:
- Savings are typically no-risk.
- Your money remains liquid.
- You put it into an account and earn interest on the amount.
- Your initial capital is guaranteed.
- It’s more easily accessible, depending on the account you choose.
- A notice or a fixed deposit could protect you from impulsive withdrawals.
- The longer-term saving deposit will generally offer you more interest.
- Your saving isn’t subject to market volatility.
The benefits of Investment:
- Aimed at building wealth.
- Potential for higher returns than savings.
- You have more say in how your money is used in investing, e.g. property or the stock market.
- The longer you invest, allows your interest to compound, which is crucial in growing your wealth.
As you can see, there are benefits and downsides to both sides of the coin.
Let’s sum up the argument of saving vs investing.
Investing can generate better returns than savings accounts, but that comes with risk, especially over shorter time frames. On the other hand, savings are more secure but less likely to earn you higher interest.
A few words to the wise.
Be empowered and understand where to put your money. Don’t be taken in by flashy offers or unrealistic interest rates. Sound too good to be true? It probably is.
Another essential thing to remember is that being a saver or an investor is better than being neither.
Finally, remember that some form of savings is vital. Experts suggest a safety net of anything from three to six months of expenses to play it safe. You want to be sure that if something does happen where you urgently need cash, it’s there.
Now, that’s peace of mind!