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Banking & Savings
Saving and Investing: Not the Same |
Yes. There is a difference between
saving and investing. And it is not as subtle as you might think. The key to successful
financial planning is to do both as much as your personal situation allows.
Saving
When you save, you're essentially stashing away money that you don't need for current
expenses. You'll save for a variety of reasons -- a new car, a new boat, the downpayment
for a new home, to pay for college tuition, a "rainy day", etc. It's not a
question of whether you're going to use the money. It's when and how.
Saving typically involves low-risk options such as savings accounts, certificates of
deposit (CDs), U.S. Savings Bonds, or money market accounts and funds. With the
exception of the latter (money market funds), these types of savings options are insured
by the FDIC. That means your money is protected for losses up to $100,000. The main
advantage of savings options are low risk, high liquidity (except for savings bonds or
CDs), and guaranteed rates of return.
Investing
When you invest, you're putting your money to work for the long-term. Your trying to build
up the value of your investments over time for larger goals like retirement or extensive
travel.
Investments include stocks, bonds, mutual funds, real estate, or precious metals. All
offer potentially higher rates of return than the savings alternative. In exchange for the
higher rewards, though, you must be willing to accept considerable risk. The value of a
stock can always drop to zero, rising interest rates can dramatically impact the price of
bonds, or there can be a downturn in the real estate market.
Both are Essential
So there you have it. The difference between saving and investing in a nutshell. Keep in
mind, one is not better than other. Saving is convenient for short-term goals or an
emergency fund while investing is for long-term goals. You should make each an integral
part of your financial plan.
Banking and Savings Calculators:
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• How much will my savings be
worth?
• How will taxes and
inflation affect my savings?
• How much difference will
the rate make?
• How much, at what rate,
when? |
