THE TERMS saving and investing are often misused and confused. If you are planning to do either, you need to know the difference.
Investing is when you use your money to purchase assets for instance, stocks and bonds that you own as property.
When you save however, you place your money in a bank, credit union, or other similar institution to allow your money to accumulate over time, while gradually adding to your initial amount.
Your investment can earn income for you in a variety of ways, whereas saving does not. For instance, you can receive stock dividends or interest on bonds interest throughout the year.
If your stock happens to increase in value while you own it, you will earn the capital gains when you sell that stock at a profit. Generally, the profit you gain from investments is more than what you would usually gain from a savings account.
However, saving is less risky than investing. When saving, your money is guaranteed to be there, but when you invest, you may run the risk of losing some or all of your initial investment, based on the amount of risk you decide to take.
The fact that the returns from investments can be so significant at times tend to motivate individuals to invest, rather than being limited to only saving accounts.
When managing an investment, homework has to be done on the investment product you would like to get into, before you place your money in it.
Ensure that you know everything you are supposed to about the product you are buying, for instance how much risk you will be taking on, as well as if the product suits your financial needs. If you are using an investment advisor, ensure it is someone credible, has the necessary expertise and is licensed to give advice.
You have to consider your goals as well. It is general knowledge that people invest with the intention of making more money, however, ask yourself how much money you need, and the time in which you would like to achieve that target, as well as what you want to use it for.
These will be your financial goals and will contribute to the kind of investment product you seek (long or short-term). Your style of investing is also important to bear in mind. Know your tolerance for risk, that is, how much risk you are willing to take on, as well as how much you can afford to take on.
Both saving and investing are imperative to your financial plan. Aim to manage them wisely, so that the reward will be great. Ensure that the option you choose, will facilitate you in achieving your particular financial goal.
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