What's the difference between saving and investing?

What is saving?

Saving means setting money or income aside for use in the near future, rather than spending it immediately. It involves putting money into a secure, easily accessible and generally low risk account, such as a savings account or a money market account.

What is investing?

Investing refers to putting money or resources into an asset (like equities, bonds or property) or a venture or financial instrument with the aim of generating a return or profit over time.

Investors can choose from various types of assets, based on their risk tolerance, financial goals and time horizon. Successful investing involves careful analysis, risk management and a medium-  to long-term perspective.

How do saving and investing differ?

1. Purpose
   • Saving: The purpose of saving is to gather funds for upcoming expenses or unforeseen emergencies.
   • Investing: The purpose of investing is to grow wealth, preserve capital or achieve specific financial goals.
2. Risk and return
   • Saving: Savings are considered low risk, but they also offer lower potential returns. The aim is to preserve the initial amount rather than generate a lot of growth.
   • Investing: Investing usually carries higher risk, but it also has the potential for higher returns. Different asset classes come with varying levels of risk and potential reward.
3. Time horizon
   • Saving: Saving is generally associated with short-term goals, and the time horizon is usually within a few months or one to two years.
   • Investing: Investing is a long-term strategy that lets investments grow and potentially compound over time. Medium-term investments mature between 3 and 10 years and long-term investments mature after 10 years or more (for example, retirement savings).
4. Liquidity
   • Saving: Savings are usually highly liquid, meaning you can access your money quickly and easily when needed.
   • Investing: Investments may be less liquid, especially if they are in assets like property or retirement funds. Selling investments to access cash may take time and could depend on market conditions.
5. Return expectations
   • Saving: The returns on savings are generally in the form of interest, which is usually lower than the potential returns from investments.
   • Investing: Returns from investments can come from capital appreciation, dividends or interest. They have the potential to outpace inflation over the long term.

So perhaps you have been saving for a while but you aren't sure this is 'doing enough' to retire well, for example. While saving is a necessary and important habit, it doesn't count as investing.

Instead, you probably need a combination of saving and investing to meet various financial goals throughout your life. By sorting your financial goals into short-term, medium-term and long-term categories, with appropriate savings and investment plans for each, you can approach investment more realistically and holistically.

Chat to a financial adviser today to get a better idea of how to start investing or how to boost the investments you already have for a more secure future.