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Saving vs. Investing
When it comes to making smart choices about using money, our options tend to fall into a few simple categories. We can spend money, save it, invest it or give it away. Most of us know how to spend it, and give it away, but many of us don't understand the difference between saving and investing. And understanding the differences may help you make better choices about your financial needs.
Saving means seeking to protect the money that you accumulate over time. For savers, maintaining a steady account balance is a higher priority than return potential. When you invest your money, you are seeking growth. While investing usually involves greater risk to principal than saving, in exchange for the risks, investors get the possibility of greater income or growth (depending on the investment), and potentially better inflation protection than low-risk savings accounts might offer.
When you combine saving and investing, you're not only setting money aside, you're also putting your money to work for you. You want your money to help you achieve specific goals. Your goals may include protecting a portion of your money for short-term needs, growing a portion of it for long-term needs or generating a steady stream of income to cover daily living expenses. In order to achieve these goals, you may need to take on an additional level of risk in exchange for a higher level of return than what you can earn in an ordinary savings account.
These articles are not meant to be a financial plan. A financial plan generally addresses a wide spectrum of financial needs including insurance, savings, investments, tax and estate planning.