Which do you do: investing or saving? Some may already do both, while some may use these terms interchangeably. However, saving and investing or two different wealth-building strategies to understand.
It’s important not to confuse the two, as investing and saving both have their perks separate from one another. When you combine the two, though, they equal a strategy to build long-term wealth.
We lay out the differences between investments and savings so you can better understand the two.
What is Investing?
The best way to spot the differences is to define what each term means, starting with investments. Investing is when someone buys and sells things like stocks, bonds, forex, real estate, and mutual funds. The purpose is to make money off the trade by buying low and selling high (although there are other ways to profit).
Investors trade on the stock market and often do so through a trading platform. There are many types of trading platforms available that each offers the investor their own perks. Take a look at this FBS trading review for a general idea of a trading broker and platform.
What is Saving?
On the other hand, we have savings. You can look at this term in multiple ways, but it eventually comes down to setting aside money you don’t frequently use. Someone can open a savings account through a bank or even have an envelope at home they put cash in. Either way, you’re putting money aside for a purpose.
With saving, you want to have access to this money at any time without any hassle. There’s no risk of losing any money, minus any fees or taxes. Many individuals set up savings accounts for retirement, a holiday, a house, or for their children’s college down the road.
The Difference Between Investing and Saving
After defining the two, we can already see the biggest difference between trading and investing – one method is meant to earn a profit, while the other sets aside money for future expenses. That is why investments are typically long-term, and saving is frequently short-term (although the reverse can be true).
Another key difference is the risk level. In investments, you can have strategies in place to minimize the risk of a trade. However, because no one can truly predict the stock market, there is always a risk of losing money in an investment. With savings, however, the risk is usually relatively small or no risk at all.
When you’re setting money aside for saving, you’re not necessarily looking for a high rate of return. Instead, you may opt for something with little to no fees that you can access at any time. With investments, the goal is to have a high rate of return to maximize your profit potential.
There are key differences between investing and saving that distinguish that these are two separate wealth management practices. However, it is possible to combine them. Some may use investments as a form of saving for the future or set up a savings account with a high return rate. Both of these, though, do have a larger risk level.
In the end, remember that anyone can set money aside and start saving. For investing, though, it requires some prep work ahead of time. Find a reliable trading platform or broker (like ECN brokers) to connect you to the stock market.
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