Saving is a way to store money for when you need it in the near term, whereas investing is about acquiring growth assets or assets that generate income, with the aim of building your wealth over the long term. The key differences between both are defined by risk tolerance, timeline and personal financial goal. So, what does that mean?
Saving is a process of putting aside money for use in the future which pays you an amount of interest over that period.
- May be suitable for short-term financial goals.
- Lower-risk financial products (but not necessarily risk-free).
- Low rate of return
- Risk that inflation may impact value of returns.
Typical savings products are savings deposit and term deposits, defined broadly as cash (asset).
Investing is a process of creating wealth in the future with long-term goals.
- May be suitable for long-term wealth goals
- Higher-risk financial product
- May offer higher rates of return
- No guaranteed returns
Common investment products include shares, ETFs, managed funds, property. These investment products will commonly invest in a variety of investment asset classes such as shares, property, bonds and alternative assets (for example, airports and energy grids)
To understand the difference between investing and savings, below is a graph of how $10,000 has performed across different asset classes such as shares, property, cash and bonds over 25 years from 1996 to 20221. This covers periods of share market volatility such as the Asian market crash (1997), DotCom Bubble (2000), Global Financial Crisis (2008), COVID-19 Market down-turn (2020), to name a few.
