9 years ago investing126Jake

The Difference between Investing and Saving

Is there a difference between investing money and saving money? There certainly is. You are being proactive with your money when you invest it. You are taking an active role in what happens with your money and are putting it to work for you to earn you more money.

On the other hand, when you save you are taking a passive role with your money. Saving money means to put it away somewhere for safe keeping for a future date. That is where the whole idea of “saving money for a rainy day” comes from. Saving money focuses on keeping the principal safe (or the money you had to begin with) while investing is more concerned about the return on money. Investing involves a risk factor while saving involves a slight risk but not nearly as much as the former.

The Focus of Investing

When you invest, you are concerned about your return and this involves a modicum of risk. Some people are very conservative in the risks they take when they invest while others favor more aggressive moves. One way that you can easily measure your results is by weighing the risks against your expected return.

Characteristics of Stocks

There are certain characteristics that separate investing money from saving money. When it comes to stocks for example, there are three main differences. These differences include ownership, upside potential and risk.

Ownership

Buying stocks means that you are becoming part owner in a company. You are then afforded rights which include voting on important issues and participating in the profits when the company makes the decision to distribute the dividends. On the other hand, you don’t own anything when you put money in a savings account.

Upside Potential

Individuals who own stock get to play an active role in the growth and development of the company. As the value of the company increases, so does the investment you have made. The same is true for profits.

Risk

Some people thrive on risk while others recognize the opportunity for great loss that is involved with investing in stocks. If you can balance the chance for gains with losses, then investing is right for you. On the other hand if the thought of loss scares you then stick to saving your money. Keep in mind however that inflation and taxes can be your two worst enemies when it comes to saving money in an account.

Jake