Wondering whether you should save or invest? The answer depends on your goals and your financial situation. Below is all you need to know about both. It’ll help you make the right decision.
The difference between saving and investing?
- Saving – is putting money aside, bit by bit. You usually save up to pay for something specific, like a holiday, a deposit on a home, or to cover any emergencies that might crop up, like a broken phone screen. Saving usually means putting your money into cash products, such as a savings account in a bank or co-operative society.
- Investing – is taking some of your money and trying to make it grow by buying things you think will increase in value. For example, you might invest in stocks, property, or a business.
The Pros and Cons
Easily accessible – one benefit of saving your money rather than investing it is your money is easily accessible. When you need cash, you can easily go to your bank and withdraw funds at any time.
Low risk – Unlike some investments, when you set money aside in a savings account, you are not putting your funds at risk. Savings accounts are stable and do not fluctuate with the stock market
Low-interest rates – With low risks come low returns. Interest rates on savings accounts are lower than almost any other account. If you plan on leaving your money in an account for more than a few months, you may want to consider a different type of account that delivers a slightly higher interest rate.
Earn returns– When you purchase a stock, bond, or other investment vehicle, you do so with the hope that your investment will appreciate over time and earn money. When compared with other investments, stocks typically have the highest average returns. However, they come with higher risks.
Multiple choices – When looking to invest your money, you have a lot of choices. Not only can you select what you want to invest in, like the options listed above, there also have a wide range of business ideas you can begin.
Somewhat risky – Different kinds of investments have different risks. Typically, the amount of risk correlates with the potential for higher returns. While there is great potential to earn income with investments, there is also the chance you can lose money. There is no guaranteed return on any investment.
Harder to access – When you decide to withdraw your money from your savings account, you simply go to the bank and make a withdrawal. When you decide to cash out an investment, it’s harder.
Whether you put the bulk of your money into a savings account or into investments depends on various factors. Both saving and investing are important for overall financial security. Look into the pros and cons well, and decide what would work for you.
Would you rather save, invest or do both? Tell us in the comments!