Many people use the words saving” and “investing” interchangeably. However, there’s a major difference between the two. Let’s look at what each term means and how they differ from each other.
Investment has gradually become a household word that you hear everywhere and become so familiar with it that you forget its meaning and switch it for what savings means. You hear everyone saying, “I am investing” or “I am an investor” but when you ask what they are investing in, you hear replies like “I got a 200k bone straight hair and would not have to spend recurrent money on my hair” or “I am investing in goods, ornaments and majorly my home”. Saying all these things might sound great and you make you go ‘yeah! However, the crucial question for review is “What is the value of that thing you are investing in?” What are the projections for inflation and deflation historically and in future predictions? Will it have a good turnover profit margin if you decide to dispose of it?
In this article, we will answer these questions and more that come across your mind when you think about investments and savings.
INVESTMENT
According to the dictionary, to INVEST means to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, such as interest, income, or appreciation in value while INVESTMENT is the ACT of investing money in something or the ACTION or PROCESS of investing money for profit. We can also simply say investing means buying assets to increase your wealth through either capital appreciation (the asset value going up) or income generation (the asset throwing off cash, such as with a bond). Assets include stocks, bonds, real estate, collectibles, and so on.
Let’s make this a bit more relatable and interactive. Investment can be likened to growing an ear of corn. You put the seed into the ground and keep watering it. You nurture it until it grows, and you have a larger quantity to sustain you. If you wish, you can take more seeds to plant on a larger field. Does that make any sense? When you have fifty thousand and you do not have an urgent need for it, you can then decide to invest it.
SAVINGS
To SAVE means to keep and store up, or we say saving is the portion of income not spent on current and recurrent expenditures. It is the money set aside for future use and not spent immediately. To simplify it all, it is setting aside money for the rainy day or some targeted future purposes.
The funds are usually put in a low-risk vehicle, such as a savings account, certificate of deposit (CD), or money market fund. The primary goal of saving is to preserve your capital so that you can use it in the future.
Do you remember the instance cited when we defined investment? after working for days on the field, planting, and watering (your place of work), there comes a time to harvest the corn. After harvesting, in most cases for the smart and future-thinking people, you don’t consume all the corn at once. You save up and go to the store (bank or your purse) to pick it up whenever you need it!
Now let’s talk about the difference
The difference between these two (Savings and Investment) is that Savings is often deposited into a bank savings account or a fixed deposit and can be withdrawn at any time the depositor feels like. On the other hand, investing involves buying assets such as Real Estate, Gold, Stocks, or Shares in mutual funds that have the potential to increase in value over time.
Risk
Normally, savings has less risk compared to investment. If you don’t know of any, you must have heard when BITCOIN had a significant dip and the massive effect it had on several people. Okay, let’s assume you don’t know that. Let’s talk about a woman who invested in poultry- fish ponds, to be precise- and rain washed it all up into the river, giving the fish more comfort and the investor more discomfort.
Let’s also consider the effect of the Ikoyi building that collapsed on investors. Imagine if they had left their money in their bank account and also imagine if the building didn’t collapse the profit they would have made.
Returns
Obviously, when we talk about returns, investment has a higher return than savings. The returns from savings tend to be low compared to what you get from investing. If you put your money in a savings account, your earnings are taxed at the rate applicable to the income tax slab. On the other hand, investments are usually subject to capital gains tax and can offer better returns if invested correctly.
Understanding the market is very crucial. It guides investors on how and when to invest, as well as tailoring them to get bigger returns than when funds are saved. When an investor has little or no knowledge of investment, the timing and returns are very brutal. The risk depends on how well you understand the market and your ability to take risks.
While some people prefer savings to investment, here are some reasons you should consider investing and start today.
- Investing makes your money grow. It doesn’t allow your funds to remain dormant.
- Investing can help you reach your long-term goals and make the money relevant when you need it.
- Investment offers a better return than saving.
- Investing makes your money work for you.
Investing can be cheaper than you think. Will, you consider investing? Start with a low or medium risk platform like on the F&K Savings App.