It’s Investor Education Month, and to start things off we will be returning to the basics of investing and personal finance. Today, we look at the difference between saving and investing.
The terms saving and investing are often used interchangeably, but they mean different things. Saving is putting money aside for a future need. You may keep your savings in a bank account, a savings bond, a money market fund, or even (but not recommended) under your mattress or in a bedside drawer.
Savings are most commonly used for short-term needs such as upcoming expenses or emergencies. You earn a low rate of interest on savings deposits and can withdraw your money easily.
Investing simply means putting your money to work so it can make more money. Investing involves taking some risk with your money, in hopes of making it grow.The amount of risk you are willing to take varies from person to person, based on your personal situation and beliefs. Generally, the more risk you are willing to take, the higher potential for growth.
For many Canadians, investing is not only prudent—it’s a necessity.The cost of education dramatically increasing. Fewer people are covered by employer sponsored retirement plans. Saving for retirement will likely be the biggest financial goal for most Canadians and investing is one of the few ways that can help them achieve it.
There are many different ways you can go about investing, including putting money into stocks, bonds, mutual funds and real estate (to name just a few). Each of these has pros and cons, which we discuss later month – or for more information check out our “Investments at a Glance” summer series.
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{ 7 comments… read them below or add one }
Many consider real estate as an investment.
Absolutely. Of course it depends on your approach to buying and selling real estate, but for many it is their primary investment.
In fact, if you are only saving your money and not investing, you are almost always losing money to inflation. Unless your money is growing at an interest rate above inflation (~1.74% right now), your money sitting in a savings account is losing value. So, investing is an imperative, even if you just want to maintain your money’s value.
hummm. But you invest your savings. Or You save first then you invest that for your future.
I perfer safer investments like GIC’s or high interest savings accounts, perferrably in a TFSA. Off course the older you get and the closer you get to retirement the less risk you want to take. If you do invest in equities make sure they are good investments and not just trying to make a quick buck by taking chances.
It really is all about your risk tolerance which route you should choose, but I really think it is time we stop using saving and investing interchangeably.
Too bad when you’re young you often don’t have the spare cash to invest much.