Before starting with the risks and opportunities of investments and savings, let us first clear our ideas regarding investments and savings. So, what is the investment? Investment is a process of investing, that is, committing resources into some endeavor or thing in the expectation of a positive return. Next, what are savings? According to Keynesian economics, savings are what a person has left over when the cost of his or her consumer expenditure is subtracted from the amount of disposable income earned in a given period.
We save basically because the future is unpredictable. Saving money can help one become financially secure and provide a safety net in case of an emergency. Savings are cushions against sudden job loss. It helps to finance vacations and limits debts as well.
Investment, on the other hand, is beneficial in its own way. It helps to stay ahead of inflation. Not only this, investing helps to build wealth. At times, it helps to save on taxes. One can meet other financial goals through investments.
- It helps to beat inflation.
- It is like another earning member of your family where you do not have to be physically involved. Where your money works for you.
- Time value of money.
- The benefit of getting returns on a compounding annual rate of return
- Easy liquidity
- The investment includes market risks.
- It involves short term volatility.
- Includes interest rate risk
- Default risk or credit risk
- Reinvestment risk
- It helps during the crisis period
- Medical contingencies
- Helps to mitigate short term goals
- It assures fixed return more or less.
- A return does not beat inflation.
- Long term goals cannot be mitigated only by simple savings
- It also has interest rate risk.
According to Economic Times statistics, women are believed to be more into investments than men- women are better investors. Saving money typically means it is available when we need it and it has a low risk of losing value.
Investing typically carries a long-term horizon, such as our children’s college fund or retirement. The biggest and most influential difference between saving and investing is a risk.
In order to accumulate large sums to meet one’s financial goals, in order to beat inflation, one must take certain investment risks. Investing is all about taking calculated risks and managing the same, not avoiding the risks altogether.