You’ve probably wondered what the difference between savings and investments is. You want to begin your wealth creation journey and are a bit confused; should you save your money or invest it?
Many people confuse these terms for the same thing. In this article, I explain everything you need to know about them.
- What are savings?
- What are investments?
- What is the difference between savings and investments?
- How to decide between savings and investments?
A lot of us are more familiar with savings and how they work, but we don’t know much about investments. We understand that investing your money might seem a little complex. So we’re here to simplify both terms so you can make great financial decisions.
What are Savings?
Savings are all about putting money aside. We advise you to save about 20% of your monthly income. This money can be towards future purchases and emergencies that may arise.
Savings are usually easy to access when they’re needed. In cases where your savings are in the form of fixed deposits, you may not be able to withdraw as you wish. The interest rates on savings accounts vary but with Cowrywise, we offer competitive returns that can be as much as 3x your bank’s offering.
What are Investments?
Unlike savings, investing is purchasing assets that may increase in value. These assets could be stocks, bonds, mutual funds or even real estate. They can also earn you a return on investment. The main aim of investments is to use capital to generate substantial financial gain.
Investments are usually aimed at accomplishing long-term goals. They also allow you to diversify and have different assets in your portfolio.
What is the difference between savings and investments?
There are quite a few differences between savings and investments:
1. Investing has an element of risk that savings don’t have. With investments, you could lose the money you invested( your principal). There is also the possibility that the interest rate is not fixed and may change.
2. Savings generally have lower interest rates compared to investments. While there is a higher risk factor with investments, they sometimes have high returns.
3. Savings are best for short-term goals, while investments are for long-term goals. Investing is best for long-term commitments to earn returns and grow wealth.
How to decide between Savings and Investments
You might need to decide how to divide your money between savings and investments. You have some spare cash, and you’re wondering whether investing or saving is the right choice. Don’t fret, we’re here to help you make that choice!
On Cowrywise, you have both options. If you’re planning a large purchase or building an emergency fund, savings are the best choice. Savings are also a great idea if you want to earn interest with zero risks.
One reason you should choose to invest is to have financial security since investments are best for achieving long-term goals. Lastly, investments are a great option to protect yourself from unforeseen economic instability. You can invest in other currencies like the dollar mutual fund on Cowrywise.
You can begin your saving and investment journey with Cowrywise. We’ve made it very simple to choose from a pool of mutual funds and create a custom savings plan that works for you.
Watch this video to learn more about saving and investing for beginners:
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