2. Saving vs. Investing
a. How time impacts saving and investing
What are the differences between saving and investing? Saving is usually for short-term goals in very “safe” accounts. The amount you save is more important than what you earn on your money, which is called your “return.” Liquidity, or the ability to access your money quickly without losing your principal (the amount you originally saved) is most important. You will not earn much but your savings will be safer.
For goals that are more than five years away, you probably will want to try to make your money grow and this requires an investment. When people talk about “making your money grow,” what they are saying is that you can actually get more money by putting your money into an investment.
Most investments have risks or the possibility for losing the money you put into it. You will need to decide how much risk you want to take to earn more money or a “return” on your money. In general, the more risk you take, the more potential return there will be. (We will discuss risk later in this unit.) Investments do go up and down but with persistence, you can usually earn more through investments than you would in a savings account. Putting a portion of your money aside keeps you from spending it and helps you achieve your financial goals.