Understand How Saving Is Different From Investing
September 4, 2017
We intuitively know that saving and investing are markedly different. Nonetheless, the clear distinction of the two money-related endeavors is usually lost on us, owing to the typical combined use of the two concepts. Whenever we discuss one of the concepts, we inadvertently bring up the other concept. For instance, when we talk of saving, more often than not the discussion will also touch on the investing and vice versa. With this in mind, we will explore the distinction between saving and investing.
Saving is an endeavor where you set some money aside in a safe vehicle, where the money remains accessible at any given time when you need it. As such, for any funds to be rightly considered as savings, they should be highly liquid and extremely safe, with the possibility of earning some interest. The safe keeping of the money can be in checking accounts, certificate of deposits, and savings accounts. Additionally, to further the safety of the money, savings are usually insured (obviously up to a certain amount).
However, a trade for this extreme safety is the low amount of profits your savings earn. While for the most part the vast majority of money deposited as savings do attract interest, the interest tends to be quite small. Thus while the money still works for you, the gains tend to be quite little in the long run.
Investing, on the hand, involves putting up money in vehicle/platform with the hopes of growing your wealth. As such, investing, by its nature, is meant to increase wealth. However, with the potential of increasing your wealth substantially, the risk of losing your principle is also high. Your investment platforms/vehicles may work for, or they fail, causing you to lose your policy, and thus instead of experiencing growth in wealth, you experience a shrinkage of the same.
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