Accumulating and building wealth is essential for an individual to secure his financial future. Investing and saving are both economic terms concerning money or assets.
Both are interchangeable terms but have completely different meanings. Both are activities performed to enhance or increase an individual’s wealth.
Key Takeaways
- Investing involves using money to buy assets that have the potential to increase in value over time and generate a return on investment.
- On the other hand, saving involves putting money aside for future use, in a savings account, without any expectation of generating a return on investment.
- Investing carries a higher risk and potential for higher returns than saving, which is considered a low-risk, low-return strategy for preserving wealth.
Investing vs Saving
The difference between investing and saving is that investing means putting money, effort, or time into financial schemes, property, or commercial ventures and shares with the expectation of profit.
Saving refers to the money left over from an individual’s income which is kept for later use. The surplus amount is available after the consumer’s expenses are subtracted from the revenue earned in a given period.
Investing is allocating resources (money) to generate income or a greater payoff in the future than what was originally put in. Saving is the money put into an account at a bank or a similar financial organization after being set aside from the current income.
Savings may be in the form of increased cash holdings in banks.
Comparison Table
| Parameters of Comparison | Investing | Saving |
|---|---|---|
| Meaning | To put money, effort, or time into the financial schemes, property, or commercial ventures and shares with the expectations of profit-making. It is allocating resources (money) to generate income or a greater payoff than what was originally put in. | It is the amount leftover or kept aside after the consumer’s spending is subtracted from the disposable income earned in a given period. This money is put into banks or similar financial organizations after being set aside from the current income. |
| Types of assets | Investing is a long-term asset. Investments involve putting money to work or creating wealth to achieve long-term goals like children’s education, buying a house, etc. | The interest rate on savings accounts is low, mostly in the single digits. Therefore returns are meagre. |
| Risk | Larger risk of loss. | Virtually no risk at all. |
| Goal | One wants his or her investments to make money. | Saving is done to keep an individual’s money safe for later use. |
| Returns | Very high potential for returns since publicly traded stocks can double or even triple within a short time. | The interest rate on savings accounts is low and mostly in the single digits. Therefore returns are meagre. |
| Liquidity | Liquidity is low regarding investing, as cash has been put into shares or financial ventures. | Liquidity is high regarding saving as the cash is in the bank and is easy to withdraw in times of need. Saved money can also be kept at home. |
What is Investing?
Investing is the act of allocating resources (money) to generate income or profit. It can also be considered as the money spent by a shareholder to buy shares of a company.
In economic management sciences, investing equals long-term saving and has the potential for long-term returns.
There are five main investment types or asset classes, each with risks and benefits. They are shares, growth, equity, defensive, and property investments.
Stocks and equity investments are considered the riskiest of the five major investment classes but offer the greatest potential for high returns.
Investing is how one can take charge of their financial stability. It allows the growth of wealth and also generates additional income if needed.
Investors consider a few factors before making investment decisions: returns, risk, investment time period, taxes and liquidity. Safety, income and capital gains are the three main objectives of investing.
What is Saving?
Saving is putting away a part of a person’s income for future use. It can also be considered the money left over from an individual’s income.
It is the money kept aside, especially in a bank or financial society, for use in the future or for the flow of resources accumulated this way over time.
Saved money is also kept at home sometimes, but this money does not earn interest in return.
Saving is important because it protects against financial emergencies and helps build wealth. Saving is done for short-term goals.
Examples of saving sources include currency, bank deposits, shares and deposits. Saving also involves reducing expenses, such as recurring spending.
Broadly, it refers to any amount of income that is not immediately used for consumption. In economic terms, savings is defined as taxable income without consumption.
Main Differences Between Investing and Saving
- Investment means putting money, time or resources into something to make profits. Saving refers to setting aside a part of an individual’s income for future use.
- One can invest in financial schemes, shares, commercial ventures, property, gold, and so on with the expectation of achieving profit. Saving is done to curb recurring expenses.
- Investing is how one can take charge of their financial stability. It allows the growth of wealth and also generates additional income if needed.
- Safety, income and capital gains are the three main objectives of investing. Saving is important because it protects against financial emergencies and helps build wealth.
- Investing is done for the future, while saving is done for short-term goals.
- Shares, growth, equity, defensive, and property are investments. Examples of saving sources include currency, bank deposits, shares and deposits.
- In economic management sciences, investing equals long-term saving and has the potential for long-term returns, while in economic terms, savings is defined as taxable income without consumption.
- https://www.sciencedirect.com/science/article/pii/S0304405X06001127
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1002388
Last Updated : 11 June, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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