Are you Investing or Saving?

Investments Simplified

Are you Investing or you are Saving?

What is the difference?

Most of you have been waiting impatiently, claiming to be ready – asking when are we going to really discuss the types of investments. I am glad to say that “finally, we are here”.  It is now time to get to the most exciting part of all this. We have built the block, one by one; we have crafted our inner beings and prepared ourselves for the way forward (at least I hope that we have through the different topics that we have explored thus far). Now it is time to talk about Investments. Are you ready? I now that I am…..

 

First discussion point - Are you an investor?

Whenever you look at yourself – do you see an investor? Do you know what we mean by an investment? Take a moment and think about it, what is an investment? And, would you say that you qualify as an investor? I only ask because in more instances than I would have liked, many confuse “savings and investments”.

And in this society, I find that, many use the words interchangeably like they mean the same thing, and that many more are savers, but very few are actually investors.

 

So what is an investment?

Most of us instinctively may know that saving and investing are not the same, but do we understand the difference? Clarity in this distinction can greatly impact one’s financial wellbeing; can define a winner and a mere survivor. Realizing these differences is vital. Knowing the difference, and when to choose each, can help you reach your financial objectives. In the end, when you actually have decided to invest – know that a mix of both may be the optimal strategy.

The key to fully understanding and putting these into practice lies in these two words: risk and liquidity.

 

Savings

These are low risk funds that must be liquid (available) when you need them. The purpose of saving money is so you can have it for a specific purpose within a short time frame. When you are saving, you are concerned primarily with securing your money, while not losing any of its value. Typically, savings are earmarked for an emergency or a short-term goal. While saving money may preserve your money’s nominal value, opportunities to grow your money are limited.

When you save, you look for a low-risk place to put your money. Depending on your choice, you might earn interest or none at all. How much interest you earn may be less important to you and your needs, than is the opportunity to preventing any loss of money or having access to your money on short notice without penalty.

Saving choices range from the likes of

§  Savings accounts

§  Money market accounts or money market mutual fund

§  Certificates of deposit (CDs)

§  Treasury bill or short term bonds

In this listing, where is your money? If it falls within this category, you have not started investing.