Answers to
Practical Questions
What is the difference between saving and investing?
SAVING
Technically, saving means the portion of your income not spent on consumption of consumer goods and services, but instead accumulated. Usually, people save for a specific goal, like a car, education, down payment on a house, or an event such as a wedding or vacation. These goals tend to be shorter-term or have target event dates associated with them.
This website is not about these shorter term savings goals. Putting your money into the stock market when you need the money for a target event within 5 years is not recommended. The market could drop by 20 to 50% just before you need your money!
INVESTING
Investing is the act of committing money today, to an investment with the expectation of obtaining income or increased value of that investment in the future.
This website is about long-term investing. In other words, money you set aside for more than 10 years, preferably 20, 30, or 40 years.
The money you target to set aside for long-term investing should be considered an obligatory payment, like rent or a mortgage. Only this payment is to yourself!
The longer you invest in equities, the more you will benefit from the high, long-term average returns of equities, compared to alternative investments such as fixed income investments, (also see Investment Piece #8 historical returns).
You will experience huge/scary volatility when investing in equities, but over a long investment horizon, i.e., greater than 10 years, the risk/return relationship works in your favour.
