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November 8, 2010 at 6:56AM

mogambo

  • Joined: Oct 2010

What is the difference between savings and investments?

Are saving money and investing the same thing? If not, how do they differ?
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November 8, 2010 at 12:27PM

Dealman

  • Joined: May 2009

2 of 2 people found the following reply helpful:

Re: What is the difference between savings and investments?

Savings are the money you have on hand that you don't touch. Investments are the money you use to potentially turn a profit via stocks, bonds, mutual funds, and other methods. Ideally, your investments will pay off, which you can then add to a savings account - or you can turn that profit towards investing in something else.

One other thing to consider: a savings account can be an investment source, as you can earn interest on money you put into a savings account. However, this is a much slower investment source than an investment in stock, which can pay off quickly and with a bigger payout. So...a savings account has low risk, while traditional investments have a higher risk.
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November 9, 2010 at 11:31AM

johnny.utah

  • Joined: Jul 2008

4 of 4 people found the following reply helpful:

Re: What is the difference between savings and investments?

I've seen this explained a lot of different ways, but it does seem Dealman is generally correct. Savings is what's left over of your income after consumption. I think as soon as you put that money in an interest bearing savings account, it becomes an investment. Investments are generally of two types:

Lending - Savings account, CDs, Bonds. You're basically lending your money to another entity expecting to get it back eventually plus interest.

Own - Stocks, Mutual Funds, Home, etc. You own a piece of something and you hope that something will appreciate in value so you can sell it for more than you bought it. Also, some stocks pay periodic dividends to owners, which is a piece of company profits.

I would advise against a strategy my friend Bohdi used. He would acquired income illegally and then proceed to consume the entire amount. When he ran out, he would repeat the illegal activity. He never saved or invested. This resulted in a downward spiral where he was running from the law and finally died in a Surfing accident at Bells Beach, Australia.
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