Saving vs. Investing: How are they different?
When it comes to ‘financial’ advice, ‘save your money' is one of the most popular things you’ll hear. However, as the economy has grown and become more sophisticated, investing is a great way to not only save but also grow your money. So what are differences between saving and investing, and how do they affect your financial health? Let's take a closer look...
Difference between saving and investing
The key difference between saving and investing is growth. Saving is an act of putting aside some funds from your income for future use. Investing, on the other hand, is putting using funds productively. Saving doesn't necessarily offer any growth to your money; investing implies that you put your money in investment instruments that offer gains and benefits, thus growing your money.
Based on your financial standing and needs, you will choose between saving and investment. But if you are confused as to what option is better for you, here are a few pointers to help you.
Saving or investing: Is one better than the other?
Risk: This is a major difference between the two. Savings in a savings account face minimal risk, yet also earn minimal returns. With investments, there is the opportunity to earn better returns over the long term, but there is also the potential for loss.
Returns: If you have a savings account, the returns that your money earns are minimal. Example with a fixed deposit, you will earn about 8-9%. There isn't much scope of growth for your money when you simply save it. With investing money in equities or mutual funds, you are exposing your money too much higher growth opportunities, especially when invested for the long-term (over 5 years). So, investment returns tend to be higher.
Access to money: The main reason why people have for so long preferred saving is the easy access it provides (otherwise known as liquidity). Withdrawing money from your savings account is simple and quick. However, with digitalization, liquidating equities and mutual funds have also become equally easy. With wise planning, investing gives you the chance to grow your money and also liquidate it as and when required.
Time period: Saving usually is for short-term goals, like buying jewelry or taking a family vacation. So you might save for say, a few months or a couple of years. Investing, on the other hand, can be for short, mid or long-term goals, like a foreign vacation, funding your child's education, a dream wedding, retirement plan or buying a house.
Weigh your options, list out your goals and choose between saving and investing wisely.