I was chatting over a cup of coffee with my friend Lata a few days back, and among other things we got talking about investments. So I asked where do you invest your money? She said, I put it in a bank deposit. So I said, Ok, but where do you invest? Lata looked at me questioningly, what do you mean? Isn’t it the same?
So here it is, while saving and investing are often used interchangeably, saving and investing are not synonymous or same.
When talking about saving in the context of finances, it simply means that you are setting aside money not to be spent. Investing means that you are putting money somewhere such that, you expect that investment to rise in value so that you achieve a profit, or at least grow.
This is a very important distinction to keep in mind because when you save money, your primary goal is preservation or safeguarding rather than growth. However, when you invest, you are spending money with the expectation that you will receive back your original amount and then some.
You usually save for a particular goal, like having the money for a holiday, a deposit on a house, or jewellery or any emergencies that might crop up. And also, it generally is for a short time period, though I know people invest in saving products for long durations as well. I would consider options like putting your money into cash products, like bank and company deposit as savings.
Investing on the other hand, provides the opportunity for your money to grow because the asset that you purchase (whether it is a mutual fund, a share of stock in a company, a piece of real estate or something else) hopefully becomes more valuable over time.
Of course, the flip side is that when you save money, while you don’t have much potential for growth, you also don’t have much risk of loss. This is not the case with investing. When you invest, you have the opportunity to achieve higher returns but this comes with higher risk meaning you could also lose your money.
The key is therefore to understand your own risk tolerance and also the risk inherent to any investments you are considering.
In another article, we’ll tackle this in more detail and help you think about where to invest.
Till then, keep saving and investing!
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