What is investing as opposed to saving?
There’s a broad line that sets apart savings from investing. When you set aside funds for the near-term, it’s called saving but allotting funds for the long-term, it’s investing.
In short, saving is just postponing a purchase or acquisition.
Short-term time deposits, savings account, money market placements are good channels to put in money that you want to access immediately when needed. Buying a family car, vacation packages, or paying for household emergencies are short-term needs usually funded from these accounts. The return is minimal but you’re assured of getting the principal once needed.
Goals that are long-term in nature such as setting aside funds for college education and retirement require purchasing assets proven to yield a higher return on investments (ROI).
While stocks and bonds are examples of such assets which you can purchase and hold for longer periods, financial planners advise diversification of investments.
Now that you got a glimpse of what investment is, it’s time to understand why it’s so important. Below are four top reasons:
Reduces uncertainty
A financially secure individual has fewer uncertainties when it comes to financial stability. You have cash reserves and are empowered to make investment decisions.
Helps achieve long-term goals
Future plans like buying a new home, sending kids to college, and building a retirement fund are future goals you want to accomplish. To do this, you need to put your money in the right forms of investment. The appropriate type will depend on your goals and your timetable.
Builds wealth
There are many investment options available in the market that will help you grow your money. Bonds, stocks, and mutual funds are some of these options that could help build wealth within longer time frames of around seven years and beyond.
Shields you from inflation
Inflation devalues your money and so with your savings. Prices of goods and services keep on increasing every year. Investing shields you from decline or loss of capital whenever prices soar. A good way to fight inflation is to invest in assets that assure an ROI that’s higher than current inflation rates. Equity investments are one such investment type that yields higher-than-inflation-rate ROI.
Whatever long-term goals you have set for yourself, remember that investing will always be an essential tool for achieving success.
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