What is the Difference Between Saving and Investing?

by | Investment Basics

Saving or Investing?

Difference between Saving and Investing

The difference between saving and investing is clarified with an explanation of saving and savings, and investing and investments. Once you understand these distinctions; the difference between saving and investing is fairly easy.

Saving

The act of preserving income for a future use; or an amount of income that is not currently consumed. After the act of saving you may choose to place the money in savings or investments.

Savings

The asset amounts that are preserved for future consumption. The main objective of savings is to preserve the money. Savings would incur little or no risk to the original capital. Because of the relatively low risk; savings will generally provide a low rate of return.

Investing

The act of placing money in risk assets expected to grow from producing a product or service of benefit to others. Investing generally involves putting the original investment at risk with the hope of higher returns than savings.

Investments

The risk assets owned with the expectation of increased value in the future. Investments generally incur risk of your original capital and provide a wider range of investment returns than savings.

Some people confuse investing with gambling. This is one good reason it’s important to differentiate and compartmentalize saving, investing, and gambling. Most gambling involves risking capital and dividing a fixed amount among winners and losers based on chance. This is different from investing where you place your money in an asset expected to increase in value over time.

Keep your saving, investing, and gambling activities completely separate from one another. This will help you focus on the objectives for your capital and improve your chances of meeting your wealth building goals.

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Disclaimer
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.

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