Savings vs Investments

What is the basic difference in savings & investments?

SAVINGS

• Saving is the process of parking hard cash in extremely safe and liquid security.
• The primary aim should be capital preservation and the secondary goal getting some returns, if possible. This can include savings accounts and certificate of deposits among others.
• Savings are ideally smaller, for short-term goals in the near future like a vacation, emergency etc.
• Liquidity is high, giving ready access to cash when needed.
• There is typically no risk involved.
• You can earn interest on your savings.
• As a thumb rule, your savings should be enough to cover personal expenses like loan payments, insurance, utility bills etc. and any unforeseen expenses.
• For e.g. If Rs. 1 lakh is kept in a bank account, or FD it is savings.

INVESTMENTS

• Investing is the process of using money/capital to generate a safe and acceptable return over a time-period. An investment can include real estate, gold coins, stocks, mutual funds and small business to name a few.
• Investments involve putting money to work to create wealth for achieving long-term goals like child’s education, house etc..
• Liquidity is usually not easy when you invest money.
• Risk involved is usually high.
• Investments have a potential to yield higher returns, where investments appreciate over time.
• Any specific purpose that will require a large corpus of fund in five – ten years should be investment driven. For e.g. purchasing a home after say five years will require a steady investment objective today.
• While investing, you give your assets the potential to grow over a time-period. Typically, you re-invest your interest, dividends and other capital gains. More often than not you are willing to take risks while investing your money. But with the appreciation in money, also comes the risk of losing money. Hence, keeping a long time frame is usually recommended to recover from any decrease in value.
• How much should one save and invest?
• Savings is the foundation to build your financial goals. Savings will provide you the capital to design your investment.
• SAVINGS AND INVESTMENT COMPARISON.

SAVINGS	INVESTMENT
Earn interest – typically < 5%	Return in form of growth, dividend or both.
Money can only increase due to interest.	Higher return than from savings.
Low risk: low reward.	Risk that investment falls in value.

• While investing, you give your assets the potential to grow over a time-period. Typically, you re-invest your interest, dividends and other capital gains. More often than not you are willing to take risks while investing your money. But with the appreciation in money, also comes the risk of losing money. Hence, keeping a long time frame is usually recommended to recover from any decrease in value.
• As we all know savings accounts are giving only 3.5 % – 4 % , FD about 5.5%
• Explore options
• Here are the potential choices to be considered for savings:
• Savings accounts
• Money market accounts
• Certificate of deposits (CDs)
• Bonds
• There are a host of investment options as well:

1. Individual Securities such as stocks and bonds
2. Pooled investments such as mutual funds
3. Real Estate
4. Gold Silver

The Author Falguni Shah
Certified Investment Advisor (CIA)
Certified Financial Goal Planner (CFPG)
Goal Planning Specialist (GPS) ,AFMI, IRDA registered , DMLT ,BSc catering more than 13 years.Have trained more than 2000 people.

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