Many people use investments and savings interchangeably because they have a similar end foal. Both are very useful tools if you want to secure a good financial future for yourself. In depth, the two are completely different actions. While savings involves putting away your disposable income for the future, investments is more of using it. Most people use their savings to clear large expenses and loans like clearing some college tuition on the future.
Investments, on the other had is when you commit your money including the savings to some risky opportunities with the goals of income generation, and high value future appreciation. You will require capital, cash and savings for the investment. Basically it is an outlay of opportunity or assets that will give you some financial growth. The investments have no limit; they can range from bonds, real estate, stocks, jewellery and other ventures that have potential of giving you profit in the future. There are two main investment types, the fixed income investment and variable income investment. As opposed to the fixed alternatives, the variable income investments have high fluctuating interest rates.
Cleary, the intentions for investments under savings and investments are completely different. The main goals of savings are to target some minimal financial goals. When you put aside your savings, you usually have one single target in mind which you will take care of in a short period of time. You can choose to save for a few months or several years. Some of the examples of target goals include purchasing financial effects and financing the education. Investments, on the other hand are designed for some long term financial goals. They have a more substantial outlay when compared to the savings. Some of the most common investments today include starting a business and buying real estate property.
Another major difference is that investments offer you limited access to your finances and withdrawal ac compared t savings. This makes savings very useful when you have financial emergencies. You have complete control over your personal savings account. In this case you can withdraw the entire amount of savings or part of it depending on the demand. Investments have a system and are very limited when it comes to access. There are some flexible types of investment but they will require some time for availability and accessibility. Investments such as mutual funds, allow you complete access at all times but that is just an exception.
Investments are bound to attract higher risks than the savings. The risks of saving money in a bank account are almost non-existent. Saved money has a very low chance of growth. Even in the ban, the savings will attract a very low interest. Investments on the other hand attract major risks but they also offer major rewards.
If you want a long term potential for returns, investments are best for the job. Saving is good if you are doing it for a short term and it offers limited growth as compared to investments. Saving and investments are complementary and work together to help you secure your finances.