FINANCIAL FOCUS: Saving is good, but it’s not investing

Published: Thursday, February 13, 2014 at 12:37 PM.

This disparity between the amounts accumulated in the two accounts shows the difference between saving and investing.

Still, you might be thinking that investing is risky, while savings accounts carry much less risk. And it is certainly true that investing involves risks. After all, investments can lose value, and there’s no guarantee that losses will be recovered.

Nonetheless, if you put all your money in savings, you’re actually incurring a bigger risk — the risk of not achieving your financial goals. In fact, a low-rate savings account might not keep up with inflation, which means, over time, you will lose purchasing power.

Ultimately, the question isn’t whether you should save or invest — you need to do both. But you do need to decide how much of your financial resources to devote toward savings and how much toward investments.

By paying close attention to your cash flow, you should be able to get a good idea of the best savings and investment mix for your particular situation.

For example, if you find yourself constantly dipping into your long-term investments to pay for short-term needs, you probably don’t have enough money in savings.

On the other hand, if you consistently find yourself with large sums in your savings account even after you’ve paid all your bills, you might be “sitting” on too much cash — which means you should consider moving some of this money into investments with growth potential.



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