The Argument of whether or not Investment is better than savings and vise versa is one that has been in existence for as long as we can remember. In this article, There would be a breakdown of both terminologies and well as side by side comparison so we can come to a conclusion.
Savings
Savings, Simply put, is setting aside ones money for future dedicated purposes. Saving is known to be very common especially amongst income earners as it is seen as the least stressful option especially in the case where one can get interests on their savings. It is important to know that savings is not completely risk free because those available interests rates have tendencies to fluctuate.
Although savings looks like a risk free option, It can be risky in the sense that it has tendencies to depreciate over time leaving you with less purchasing power.
Investment
Investing is also setting money aside for the future but the main difference is that this comes with the goal of earning in the long run. There are various types of investments. A popular example is a Fixed term investment which is simply selecting a fixed tenure of investment at a predetermined interest rate.
Although with investments you get to decide how much risk you want to take, you are exposed to a certain level of risk regardless. With investments, There is a possibility of getting back less than initially invested but this is very unlikely with proper risk management and with proper use of tenure.
This is why it is important to invest safely and with a trusted financial institution. Our guide attached below can be of help to you ;
Is saving or investing the best option for you?
Savings may be right for you if:
You have short term goals:
If you have upcoming expenses for the next few years, such as buying a car or building an emergency fund, then saving is a better option. Savings provides liquidity and accessibility when you need money fast.
You have low risk tolerance:
If you’re uncomfortable with losing money and want your money to be safe, saving is the safer option. Savings accounts typically offer low risk and modest returns.
Emergency fund:
Building an emergency fund should be a priority before considering an investment. Saving 3-6 months in living costs can provide a financial safety net in the event of unforeseen circumstances.
Limited knowledge and time:
If you’re not familiar with investments or don’t have the time to research and track investments, saving is a simple option.
Investing may be right for you if:
You have Long-term goals:
If you are planning to retire, buy a home in the distant future, or build a substantial fortune, investing offers the potential for higher returns over the long term.
You take higher risk:
Investing is inherently risky, but it also offers the possibility of higher rewards. If you’re willing to accept short-term market swings for the potential for more returns, the investment may be right for your risk tolerance.
You like diversification:
Investing allows you to diversify your portfolio across different asset classes, reducing the impact of an investment’s poor performance on your total assets.
In many cases, a combination of savings and investment can be a balanced approach. You can allocate money for short-term and urgent needs through savings, and increase your wealth through strategic investments. It’s important to assess your personal financial situation, consult with financial advisors when needed, and make a choice that fits your goals and risk tolerance.