Saving vs. investing

By Gail Vaz-Oxlade on June 21, 2011
Estimated reading time: 2 minutes

A lot of the language around money is incredibly confusing to most people. It’s no wonder our savings rate is in the dumper. People are confused.

I’m not just talking about things acronyms like TIPS and TIGRS, I’m talking about words as straight-forward as “saving” and “investing”.

Let’s look at the word “saving.” If you go shopping and something usually costs $50, but you pay only $25, you’ve just saved 50%, or $25. Really, that’s what you saved (the verb). Except you actually don’t have anything to show for it, because what you did was Not Spend $25. Now, if you took the $25 you did not spent and put it away to grow on your behalf, THAT would be “savings” (the noun.)

In fact, if you put that $25 you “saved” into a High Interest Savings Account and started earning interest on it, that money would, in fact, be “invested.”

Investing means putting your money to work for you. If you stick it under your mattress and it earns you nothing, it’s saved, but not invested. If you stick it in a stupid account that pays you just 0.25% interest it’s invested, although you could probably do better.

There are loads of ways to invest. You can stick with the tried and true savings account, tie the money up a little longer in a GIC, or buy a bond. You can look to the stock market and choose individual shares of companies you feel have promise. Or you can decide to diversify by using a mutual fund to spread your eggs over several baskets. Or maybe you’ll just “buy the index” and go with the flow.

Each of these “investment options” or “investment vehicles” is just a different way to put your money to work. Each has positives and negatives. If you’re an “investor”, it’s all about finding ways to put your money to work so it earns you more money.

Investing isn’t always easy to do, particularly when you’re looking for higher rates of return. It takes research, analysis and hard work. You only put your money down once you’re pretty sure that there’s a reasonable expectation of profit. The risk isn’t completely gone, but you’ve done enough digging to know exactly what those risks are and what to watch for so you’ll know when it’s time to sell your investment.

Saving, on the other hand, is easy-peasy. All you have to do is NOT spend. Then take that money you did not spend and pile it up so you’ll have it for later. Like I said, easy-peasy.