Saving vs. Investing
July 22, 2009 by Miranda Marquit
Filed under Finance
I read something interesting the other day from Tisa Silver at the Investing blog on Bizzia. The idea of saving vs. investing was looked at. In these tough economic 
times, saving is on the rise as people worry about their financial situations. Current issues in the stock market has made investing an object of fear for many. However, in both of these cases, the motivating factor is fear. It is, perhaps, not the best idea to make such decisions based on fear. Tisa offers this insight into how you should decide whether to save or invest:
What is the goal and how far into the future is the goal? How much risk are you willing to take in order to achieve the goal? What rate of return is necessary in order to achieve the goal?
If your goal is to build an emergency fund that provides you with liquid assets in case you need immediate access to them, then saving is a good idea. Build up your emergency fund. But remember that saving is a form of investment as well. You receive a return from the money you put in a savings account. So think about how you can increase your yield and get the most bang for your buck.
If your goals include building up a nest egg for a comfortable retirement, putting your kid through college or some other long-term financial goal that requires better returns, then investing can be a good choice. Over time, the stock market has always gained. (Although I suppose there’s a first for everything.) Individual stocks may not do well, but the overall market wins out. Which means that with a good strategy, you are likely to get adequate returns. It’s why I like index funds.
At any rate, it is important to throttle your fear in either case. If you are saving only because you’re are afraid of what could happen to you immediately, instead of as part of an overall plan for financial security and freedom, you will likely stop when the threat of recession recedes. And if you are afraid of investing because of the current downcycle, you may never get the returns you need to reach your long-term goals.
Image source: Daylife
As you mentioned, I believe that saving and investing are interchangable terms – in essence, all saving is just a safe form of investing. I personally don’t have any savings accounts, but manage my savings in an investment account.
Whatever I want kept safe is invested in cash or cash equivalents, and the rest is invested based on my goals.
This also makes it easy to change my goals on the fly between safe and more risky investments as my financial situation changes.
Fear is one of the most dangerous feelings we can come across when taking important decisions. Thanks for the article
You are so right! Fear clouds the mind and reduces the ability to make good judgments.