The Difference Between Saving and Investing
“Poor people see a dollar as a dollar to trade for something they want right now. Rich people see every dollar as a ‘seed’ that can be planted to earn a hundred more dollars … then replanted to earn a thousand more dollars.”
T. Harv Eker, Secrets of the Millionaire Mind
When you listen to the evening news and hear reports that the stock market had a great day, do you find yourself wishing you were investing? If so, you’re probably not alone. Only about 55 percent of Americans invest in the stock market, according to a Gallup poll.
Valeria sometimes feels like she should be investing, but she is intimidated. What Valeria doesn’t realize is that she is well on her way to growing her wealth because she already is saving on her own and she is taking steps to learn about investing.
Saving and investing often are used interchangeably, but there is a difference.
- Saving is setting aside money you don’t spend now for emergencies or for a future purchase. It’s money you want to be able to access quickly, with little or no risk, and with the least amount of taxes. Financial institutions offer a number of different savings options.
- Investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that your investment will make money for you. Investments usually are selected to achieve long-term goals. Generally speaking, investments can be categorized as income investments or growth investments.
Consider this …
If you deposited $2,000 in a savings account at 3 percent annual interest, it would grow to $3,612 in 20 years (before taxes). The same $2,000 invested in a stock mutual fund earning an average 10 percent a year would grow to $13,455 in 20 years (before taxes).
Making a choice between either saving or investing will depend on your goal(s) for the money and your risk tolerance.