Investing vs. saving

Once you’ve identified your time frame for achieving a particular financial goal and have estimated what the goal is likely to cost, you can develop a strategy to help ensure that the money is available when you need it. Chances are that saving or investing — or some combination of the two — will be a big part of that strategy.

While saving and investing both involve setting aside some of your income for the future, saving usually means putting money in the bank — in savings, certificates of deposit (CDs), and money market accounts — while investing means buying stocks, bonds, mutual funds, and other assets.

When you save, you’re preserving the money you have for a later time, earning interest on your principal. When you invest, you’re taking some calculated risks that you believe will make it possible for your investment to grow in value over time or provide long-term income, or both.

Saving is an effective way of managing your money to meet short-term needs and to provide a safety net for emergency expenses. That’s because money you put in a bank account or other savings vehicle almost certainly won’t lose much value in the short term — although it probably won’t gain much value either.

Investing can help you achieve your longer-term goals since invested money has the potential to increase substantially in value over the long term or provide more income than insured savings. The risk, of course, is that returns on your investment assets aren’t guaranteed, and your account could lose value, especially in the short term.

Louise Yamada,
Managing Director,
Louise Yamada Associates

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