Saving, investing and speculating.. what are the differences?
Thanks for looking in. Before you start, we want to tell you about risks, and the differences between saving, investing, and speculating. It’s important that you don’t get these mixed up.
We don’t cater for the needs of savers but I’m going to tell you about it anyway. Saving can be defined as the process of setting money aside for a very specific purchase in the near future — typically, 3-5 years, a house deposit, a wedding etc.
The factor that’s important here is the timeline and the certainty of your money. You don’t want the value of your savings to fluctuate, because of your intended purchase (which you have budgeted and costed). There are several options available for savers, accounts with a bank or building society for instance. Unfortunately for savers, the downside is that saving typically pays interest at a rate that is only a bit higher than inflation. If you want to earn more, you’ll have to consider investing.
Unlike saving, investing is a longer term process which involves committing all, or some of your money to a pre determined level of market risk in the expectation that you’ll receive a higher return than you might get with a savings account. The most important factor in investing is the expectation of higher growth of your money. However, once again there’s a trade-off. While investing typically offers better returns than saving, it also carries more risk as the value of your investment moves up and down with global and national events and market sentiment.
You must also have a longer timeline because even if the value of your investment falls over a short period of time, it should still be higher at the end of the period than it would have been if your money had been sitting in a savings account. There are however, no guarantees.
Speculating involves putting your money at risk with the hope that you will earn a very high return in a short period of time. Day trading and penny shares are good example of speculating, where stock trades are opened and closed in a period of minutes or hours. Speculators can win big, but they can also lose everything. We don’t cater for speculators, sorry.
Generally, you save to protect money, invest to grow it and speculate to gamble it. If you wish to invest, we can help you do so wisely.
Little, often, sooner.