The Difference Between Investing And Saving
We are all generally aware of how important saving and investing for the future is. However, when it comes to separating investing from saving, things start to become a little more complicated for many people.
It’s common to confuse these two financial actions, with many people considering things like 401(K) contributions to be equivalent to building savings.
But there are some important distinctions between saving and investing and understanding these differences can help you better allocate your funds.
Below we’ll look at some key differences between saving and investing along with some examples to help better define the two.
What Is Savings?
Savings is money put aside and generally built upon over time. This money is put into very low-risk accounts, such as a savings account. With savings, the money is also readily available at virtually any time it is needed.
For example, someone may put $100 a month into a savings account to help build money for a downpayment on a new car. The money in the savings account is at very little risk of dropping, and the money can be taken out whenever it is needed to make the desired purchase.
What Is Investing?
Investing is putting money into financial products or assets where you expect a return, or in other words, make money. This means there is also a chance you could lose money, either in the short term or even the long term.
While some investments can be liquid, like stocks and the cash value can be redeemed quickly similar to a savings account, the timing may make it unwise to do so.
For example, let’s say you invest in stocks instead of a savings account to build a downpayment for a car. When it’s time to buy the car, the stock you invested in may be lower than when you bought it. So although you can sell, it may be unwise to do so simply because cash is needed at that time.
This sets up the main difference between savings and investing and why a good financial strategy often involves both.
Differences Between Saving And Investment
Based on the examples above, it should start to become clear why a good strategy for financial well-being is to mix investing with savings.
Someone who invests all their money may have the potential for greater returns, but they are unable to quickly deal with cash emergencies that may arise.
Someone who saves all their money in low-return accounts may be ready for any financial emergency, but they are missing out on significant returns.
So a good mix of savings and investing is necessary. You will want enough liquid savings to cover potential expenses and emergencies. Then any available funds beyond that can be put into higher-return investments to reap the benefits.
More Help With Saving And Investing
Whether you’re new to investing or just looking to improve your portfolio, the expert wealth management team at ICNV can help.
ICC provides clear, unbiased guidance for female executives and it is backed by a team of experienced fiduciary financial advisors. To learn more about the services they offer, visit www.ICCNV.com.
