Saving vs Investing

Savings

• Accumulation of excess funds
• A savings account is a monetary asset
• A savings account is very liquid
• Some accounts bear interest but at a very low interest rate

Why save?

• Emergencies
• Financial security
• Short-Term goals and expenses
• Reduces negative emotions

How to save

• Create a spending plan
• Have access to a savings account
• Money Market Account
• Savings Bond

Advantages of saving

• + Helps you achieve financial security
• + Very liquid
• + If you need money for an emergency, you have it
• + Usually require a low dollar amount to start an account
• + Some accounts can earn compounding interest

Disadvantages of saving

• - Being able to easily access funds is tempting
• - Savings accounts usually have the lowest return
• - Minimum account balance required
• - The FDIC insures your money, but only up to a certain amount

Investing

• Asset purchased with the goal of making more money
• Investing money can either be a high risk with high return or low risk with low return
• Investments are not liquid
• The principal affects the return

Purpose of investing

• Reach long-term goals
• Increase your net worth
• Retirement
• Pay for a higher education

How to invest

• Stocks, which has a high risk and high return
• Real estate, Medium risk and medium return
• Speculative Investments, high risk and the return depends
• Bonds, Least risky way to invest but the return is a fixed interest rate
• Mutual funds and index funds, reduces risk but has a possibility of high fees

Advantages of Investing

• + Return can be high, depends on the risk
• + Not liquid, so there is no temptations
• + It is a way to increase your net worth

Disadvantages of investing

• - Can be very risky
• - Stock market could crash
• - Speculative investments can drop to a very low price
• - Some investments have high fees
• - If you lose money there is no way to get it back