Saving vs. Investing

Throughout this site, we talk about saving and investing and how important it is to your future. In this article, we will clear up the difference between the two. Understanding the difference between saving and investing will help decide which is best for your own goals.

In short, saving is about keeping money safe, while investing is about making money grow. When you save, the goal is to avoid risk and have a secure stash of money for whatever reason. When you invest, you are taking on some degree of risk with the expectation that the money will grow over time.

Some common examples of savings tools would be savings accounts, U.S. government savings bonds, and checking accounts. None of these tools will really make your money grow all that much, but you won’t lose any money either.

A few investing tools would be stocks, corporate bonds, precious metals, or real estate. While these vehicles have the potential to make more money than saving, they also have the potential to lose money.

Should I Save Or Invest? Now that you know the difference between saving and investing, you should determine which is best for your goals. In general, you should be doing both, because you want an emergency fund for unexpected costs, but you also want to grow your money over time.

If you know you will be needing the money within the next 5 years, you should just save. For example, the money you had set aside to pay for your wedding next year should not be invested. You don’t want to take the chance that the money you had for something important gets lost by a bad investment.

However, if it will be more than 5 years before you need the money, you should invest some of it. If you are in college now, you could start an investment fund now to pay for that sports car you want some day. Over longer periods of time you are more likely to come out on top when you invest.

Saving For retirement? Using what we have learned about saving and investing, we can formulate a plan to save for retirement. In general, the younger you are, the more of your retirement fund should be invested. Then, as you age and get closer to retirement, slowly shift more of your funds over toward safe savings tools.

By the time you retire, you want most of your money to be someplace safe. You can still have some invested, especially if it is in investments that create income, such as dividend-paying stocks. You don’t want to come out of retirement because of a market crash that destroys your entire life savings. Far too many people experienced this during the most recent financial crash.

If you start investing now, you will have plenty saved later in life, and you will reach your financial goals.