Investing v/s Saving: What’s The Difference?

Saving and investment are the two terms which are often considered to be synonyms of each other. But this is wrong as there is a difference between the two.

One major difference to point out is saving comes with minimum risks, in comparison to investment.

To understand further you need to have a clear understanding of these terms. In this blog, we will also let you know about their pros and cons. Let’s begin with

Savings

To begin with understanding savings, people save their finances so that they will find it useful for pre-planned purchases and emergencies in the future.

Some prefer high-yield savings accounts, and some certificate of deposit (CD) that benefit them with growing your money through interest.

Generally, savings pose a minimum risk because your money is saved in the savings account. However, interest rates do vary, it can be too low to keep pace with inflation.

For example, you can put some money from your salary into a savings account every month. Like if you find the need to purchase a $2,000 laptop in 10 months, save $200 per month.

Following this strategy helps you with no loans, no credit card, and no interest charges. Now let us have a look at the merits and demerits of savings.

Pros: 

Saving comes with 3 major advantages. These are

• It helps in backup fund for unexpected expenses
• Helps you with future plans such as vacations, sooner or later
• Money is secured with FDIC protection

Downsides: 

Now coming to its 3 drawbacks, these include

• Slower interest rates
• Inefficient to withstand inflation
• Chances of missing potential higher profits from other investments

Investment

Moving on to savings, now let’s understand investment. Well, this is a tactic people use to grow their money over time.

They do this through financial instruments such as stocks, mutual funds, and bonds.

In comparison to saving, it involves risking but at the same time potential to grow money in the long run.

Investing helps you in achieving major future goals related to education, retirement or buying a property.

Even though there are risks involved, picking investments resonates with one's goal.

When initiating an investment, you should examine your caliber of taking risks, and how long you can go with it.

When opting for more time, you can go for bigger risks. The reason is you get time to recover from market volatility.

One thing you should take note of when investing. This comes with no confirmed guarantee, because there is risk of financial losses.

Let’s give you an example in regard to it. Suppose you invest in a company that goes bankrupt later, the money you invested will seem wasted.

To escape from a major financial loss, diversifying your money in multiple firms is a smart idea to go with.

Pros: 

Some major benefits with investments include

• Higher income generating in comparison to savings
• Becomes useful for future needs
• Diversification in multiple portfolios helps in suffering from massive losses.

Downsides: 

Looking at its demerits, these are

• Quick loss of money in short periods
• Requires a lot of patience and continuous effort
• Positive outcome usually comes after long haul

Should I Save or Invest Money?

After knowing the differences between saving and investing with their pros and cons, now the one obvious question that hit you mind is which one is the right strategy to opt for?

Well, the simple answer to this question depends on your monetary status, future goals, and risk taking ability.

Studying the two different age situations, when a person is young, he manages with limited income and expenditure.

Still, there is nothing wrong in thinking about saving or investing at an early stage.

Doing so, it will benefit you with generating wealth over time and can also take risks.

No matter if you suffer losses in the short term, you can revive and benefit with long-term investment.

When you age with time and are limited with short-term objectives, experts suggest switching from stocks and referring to the conservatives like cash and bonds.

So overall, saving is good for people with short-term goals. It makes a good option for future needs.

Which is Better: Investing or Saving?

Some people often find savings more convenient to investing for multiple reasons.

Firstly, it gives a sense of security of having more money in your savings account that is enough to meet the unexpected expenses and emergencies.

Others may refer to it for a long vacation, or buying a house. Regarding investment, it comes with the level of risk. Hence, some may not find it comfortable.

Also, with low finance, it makes them more uneasy to go for investments.

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Bottom Line

Overall, it all depends on your caliber of taking risks. If you can risk to invest, then diversify the assets to experience low losses.

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