Saving VS Investing | Personal Finance & Lifestyle | Yakezie Forums

I think the purpose of saving is so that you have money to invest.  I personally invest in real estate, not the stock market.  You can invest in many things like your own business, bonds etc.  It makes it very hard to ever invest if you can't save.  

renaudgagne said:

Hi everyone! This is my very first post here and I would like your insights.

There seems to be a lot of confusion regarding savings and investing.

For example, most people save their retirement money in investment products such as mutual funds.

And we know that the Stock Market looks more like a SixFlags amusement park than a safe haven.

What is the purpose of Saving?

What is the purpose of Investing?

Where do you draw the line between those 2?

Renaud,

Saving and investing are 2 separate actions. In your example, people do not "save" their retirement money in investment products such as mutual funds. People earn wages and use these wages to consume. If they choose to delay consumption, they are "saving." Savings is the difference between what is earned and what is spent. 

Just as you can work for money, money can also work for you – this is "investing." Rather than buying consumable goods and services (we'll call them liabilities), you can buy assets. Stocks, bonds, real estate, previous metals, etc. There are a number of different places you can invest, but the intent is for your money to multiply. If you buy real estate, this happens through rent payments and appreciation of the property. If you buy stocks, this happens through dividends and appreciation. 

So, to answer your question – there is a clear line between the two. One (saving) typically leads to the other (investing). If you save, but do not invest then your money will erode thanks to inflation (I know you understand inflation because I looked at your blog). This leads me to a question for you:

"I personally will never invest where I can't have my principal guaranteed." 

Care to explain your reasoning?

The simpliest way I would try to explain it is:

"Saving" is for the short-term (any cash which shall be used in the next 0-5 years). This will be held in no to low risk assets.

"Investing" is a long-term assignment of capital to assets which will be more risky, but provide better returns in a time period of over 5-8 years (depending on investments).

Many "savings" will turn into investments (such as the purchase of real-estate) but until it is assigned to the longer-term assets, it should be referred to and managed as savings.