What Is The Difference Between Saving And Investing?

One Common Advantage Of A Long Term Investment Is

When you are young, you start taking baby steps that make your parents happy. Once you have learned how to do so, you begin taking more significant steps and gradually start running. Over time, the difference between running and walking is hardly discussed and has become one and all.

This gradual transformation that everyone has been through but barely discusses best describes the difference between saving and offline or online investing. Let us discuss.

Savings

The art of consciously keeping aside a part of your earnings for the future is called savings. The purpose behind doing so can be saving for the rainy day, building your corpus, or fulfilling your dream of buying a house for yourself.

Investing

Once you start saving, you can either keep it in your savings account or look for alternate opportunities to keep your money safe and enable it to grow. Investing is consciously putting your funds in a single investment instrument or multiple vehicles, such as bonds, stocks, etc. Today, most people have adopted online investing as a medium to help them grow their money.

Savings or online investing –  where are the differences?

While many use them interchangeably, and we do agree that the difference between these two terms has diminished considerably, here are some pointers to give you a fair idea –

Timespan

In most cases, saving is for short-term goals. People use it to encompass enough to be able to buy their next smartphone, laptop, or something that is not very expensive but will take a toll on their finances if they believe it outright.

In contrast, the focus of online investing is usually medium-term or long-term. In most cases, aspects like buying a dream home, children’s education, building a corpus for retirement, and more are the reasons behind people undertaking investments.

Liquidity

You can withdraw the amount in your savings account whenever you need it. There are no limitations in most cases regarding how much you can withdraw. In contrast, converting your invested amount into liquid cash takes time. Further, some investments have a lock-in period making it impossible or very difficult to withdraw the money at the earliest.

Risk factor

Unless the bank or the financial body you choose to keep your savings goes bankrupt, it is usually considered safe and carries minimal risk. In contrast, most investment vehicles, especially those with higher return potential, have a risk element.

Compounding

A savings account barely gives you returns enough to counter inflation. While they ensure your nominal capital remains safe, your real money remains at risk. Unfortunately, there is no scope for compounding when you merely focus on saving. In contrast, share market investments with a plan enables you to multiply your corpus faster and earn the benefits of compounding.

Wrap up

Savings is the first step to investment. Unless you have saved money, you will have nothing to invest in. So, it is imperative to understand that there is a symbiotic relationship between these two, and careful usage of both can enable you to keep your capital safe while growing it at a decent rate and using the same to fulfill your future needs.

Read also: The Convenience of Online Shopping and Investing

What Is The Difference Between Saving And Investing?

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