Should You Save Or Invest?

According to The Commerce Department, Americans are saving at the highest level in 15 years. What exactly is saving? How does it differ from investing?

Simply put, saving is conserving money.

Photo by alancleaver_2000, courtesy of flickr

Saving is meant to be free of risk. The lack of risk is responsible for the small rates of return offered by savings accounts.

BTW – Even with all of the bank failures this year, saving at a bank is still safer than keeping money on you or in your home. You may feel more safe having your money in close physical proximity, but if your house burns down or your piggy bank is stolen, the FDIC can’t help you.

Investing is setting money aside with the expectation of profits. It differs from saving because the element of risk is introduced. More specifically, the risk involved is the risk that what actually happens to your investment may differ from your expectations.

In other words, what you end up with could be smaller, larger or the same as what you started with.

Unfortunately, there is no insurance to cover losses of value from investing.

When deciding to save or invest, you should consider the following:

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?

For more considerations, visit Investopedia’ s Investing 101 Tutorial. There is a ton of information about compounding, types of investments and diversification.