Difference between saving and investment

POSTED ON 03 JANUARY 2019

Difference between saving and investment

Saving and investing are two terms that are often used interchangeably. In practice, however, they are two very different tactics to help you reach your financial goals. Let’s start with saving. It’s the simpler one of the two. Saving is the amount of your income that you tuck away for a rainy day or near-term goals. And by tuck away, we mean somewhere where safety is typically your number one goal. Bank savings and checking accounts and Fixed Deposits are great examples of places to put your savings. Most people think of savings in terms of shorter-term goals and needs—perhaps funds for an upcoming vacation or a personal emergency reserve.

So how is investing different? When you invest, you are buying an asset that you believe will generate a return over time. In other words, the main reason you invest is so your money will grow. Of course, with investing there are typically no guarantees, and most investments are better suited to long-term goals – such as retirement. So, with no guarantees, why do people choose to invest in addition to saving? The answer lies in the increase in the cost of living over time, otherwise known as inflation. While savings vehicles may be good for putting away money for short-term goals, they typically don’t generate returns beyond the level of inflation. In fact, they often lag inflation. That can mean your money isn’t just standing still, it may be losing its purchasing power over time. The first goal of every investor should be to outpace inflation so their money can generate a solid real return – that’s the return after inflation. So while most investments do not offer guarantees, they generally offer the potential to beat inflation. Saving and investing go hand in hand, and each has a place in a financial plan, but they are definitely different. Talk to your financial adviser today about how you can start investing.

This video is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. Any research and analysis contains in this presentation has been procured by Franklin Templeton Investments for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Any views expressed are the views of the fund manager and do not constitute investment advice. The underlying assumptions and these views are subject to change. Franklin Templeton Investments accepts no liability whatsoever for any direct or indirect consequential loss arising from the use of any information, opinion or estimate herein. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not an indicator nor a guarantee of future performance.

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Watch the video to find out the difference between saving and investing, and how they can go hand in hand with your financial plan.

Disclaimer: Video courtesy of Franklin Templeton Investments. Citibank makes no representation or warranty regarding its content.

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