Sometimes, we use the words “saving” and “investing” as synonyms, but they are not the same thing — knowing the difference, and when to choose each, can help you reach your financial objectives. Let’s make clear both:
- Goals: Saving is typically for smaller, shorter-term goals in the near future (usually two years or less) like going on holiday or having money for an emergency. However, investing can help you to reach bigger, longer-term goals (at least four to five years away), like saving for your child’s education or buying a house.
- Access to cash: Definitely, saving and investing are here deeply different. People usually save money in bank accounts and invests through more complex products, like ETF or mutual funds. The difference? A savings account gives you access to your cash when you need it while when you invest your money, you typically won’t be able to get at your money as easily as if you had saved it in a bank or building society account.
- Risk: One big difference between saving and investing is that investing always involves risk. With a bank or building society account, you are guaranteed to get back at least the money you put in up to £75,000, if anything happens to your bank or building society. If the value of your investments goes up, you could earn more than you would in a savings account. But if the value goes down, you could lose some or even all of your money. A typical rule for a responsible investing is: do not use the money that you cannot afford to lose.
- Potential for profit: While you can earn interest by putting money into a savings account, you generally earn a lower return than investments. Investments have the potential for higher returns than a regular savings account. The main idea behind investing is to put the money you have saved into things you think will go up in value over time. Things like shares, bonds, or property. If you sell these for a higher price than you initially bought them for, you make a profit.
It is important to remember that investing for higher returns comes with more risk and greater ups and downs. Here at Gear Investments, we constantly monitor and rebalance your portfolio to optimise the long-term returns while managing the risk. We promote the idea of investing with awareness and responsibility. The money of our customers matters us.