It is quite common for people to assume “Saving” and “Investing” to be the same thing and even use them interchangeably.
How are they different and what roles do they play in our pursuit of financial freedom?
Investment analyst, Uthman Onitiri, answered these questions and more on #AfrinvestTalks, an interactive twitter chat that focuses on breaking down complex investment concepts with the goal of developing a community of avid investors.
Here’s a recap of the conversation.
Definition of Saving and Investing
Saving and Investing are two words that are often used interchangeably. Both help us in securing a better future. However, in the real sense of it, they satisfy different purposes.
Saving typically involves putting away money in some account for a future expense or need. People save for various purposes, like buying for a car, acquisition of properties, or an unforeseen circumstance. On the other hand, investing entails putting some of your money into productive use, to make it grow or achieve returns by buying assets that might increase in value, such as stocks, treasury bills, bonds, mutual funds etc.
Differences between Saving and Investing
Firstly, you can differentiate between investing and saving based on the time horizon. Saving is usually for shorter-term goals, like saving for bulk purchases or saving for an emergency. On the other hand, investing may help you reach long-term goals, such as planning for retirement.
Furthermore, both can be differentiated based on risk. The downside risk (possibility of losing money) attached to Saving is usually minimal, while Investing (depending on the asset class) could have some risks attached to it.
Also, saving in a bank or a savings box earn lower or no return while investing typically has the potential for higher returns when compared to a savings account. Lastly, accumulated savings is easier and quicker to withdraw compared to liquidating an investment.
Going by the aforementioned, you should have realized saving alone cannot make up the increase in wealth, because it can only accumulate funds. You must endeavour to mobilize your savings. One of the ways of savings mobilization is investing.
How to mobilize savings for investment
Before we talk about mobilizing savings for investment purposes, let us debunk some myths.
- You do not have to be rich to start investing.
- You are not too young to start investing.
That said, here are some of the investment assets one can invest in.
Stocks and equities
This involves buying shares of listed companies on the Nigerian Stock Exchange (NSE). You can build your portfolio by investing in stocks with strong earning potentials. Equity investment is quite risky I must tell you. Ever heard of this statement, “The higher the risk, the higher the potential returns?”
To navigate the pool of stock/equity investment, you need very brilliant investment advisors and research analysts and a seamless platform to trade (buy or sell stocks/equities). At Afrinvest, we have a strong research team and advisors that can supply suitable recommendations and investment advice, feel free to reach out!
Fixed Income Instruments
Fixed-income assets have a predetermined rate of return; thus, they are less risky. Examples include Federal Government Bonds or FGN Savings bonds, Nigerian Treasury Bills, Commercial papers (typically issued by corporates and riskier than government-issued instruments), Eurobonds (Corporates/Sovereign) etc. The benefit here is that the rate of return on these assets is typically higher than what is earned in a typical savings account. Other Investment channels include Mutual funds, tracking the money market or equity market.
Investing is not a sprint or get-rich-quick scheme. To start investing is to start creating wealth. Mobilize your savings for investment purposes, you are not too young to start.
You can start your investment journey by reaching out to advisors at Afrinvest.
#AfrinvestTalks is an interactive twitter chat that focuses on breaking down complex investment concepts with the goal of developing a community of avid investors. Follow Afrinvest on Twitter to join the conversation.