by Susan Paige
Saving vs investing – the never-ending issue. So, what should you choose? More often than not, people look at investing as something that is meant for rich people only, so they choose to save instead. But looking at a list of forex brokers might make you think that investing could also be an option for you.
So, which one should you choose? We’ve got you covered, so read on to understand saving and investing and learn the differences between them.
What Is Saving?
Saving represents the act of putting money aside in case of emergencies or collecting an amount that you can use to purchase certain items. This can involve collecting money in a drawer or a piggy bank over the years, using a savings account, or using a certificate of deposit. Most of the time, saving is a perfect tactic for short-term financial goals.
What Is Investing?
Investing is a way to purchase assets such as bonds, stocks, and mutual funds that grow in value as time goes by. Then, you can obtain capital gain when you sell the asset at a higher price. It’s a riskier activity, which is why not everyone wants to jump into investing.
What Makes Saving and Investing Similar?
Although different, saving and investing are a bit similar in a few ways. For instance, both strategies involve putting money aside for certain purposes. Both people who save and invest know how important it is to have some money saved for the future, whether it’s for a purchase or emergency expenses.
Furthermore, both investing and saving take advantage of specialized accounts with financial institutions in order to gather more cash.
What Makes Saving and Investing Different?
Now, despite sharing some similarities, saving and investing are completely different things.
Saving uses a bank account while investing uses a brokerage account. Saving is better for short-term goals, and investing is better for long-term ones. It’s very easy to save too, but investing is a bit more challenging, thus reserved for people who know what they are doing.
Unlike investing, saving is not expensive in the slightest. On the other hand, investing may cost quite a bit, especially since you might owe taxes on your gains.
Risk is way higher with investing, because you may lose some or all of the investment capital if you make the wrong move. Meanwhile, if you use FDIC-insured accounts for savings, there is no risk involved.
Which One Is Better?
There is no definitive answer on whether investing or saving is better. However, one or the other is more suitable depending on your goals and financial position.
For instance, saving is great if you have not built an emergency fund just yet and if you will need some money within a few years. Also, this is great when you are dealing with high-interest debt.
On the other hand, investing is suitable for people who do not need the money too soon and who are ready to take on risks.
Both saving and investing can be good in the right circumstances. Compare their differences and pick the one that is more favorable for your situation.