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Savings vs Investing

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When it comes to money matters,

there are two terms we often hear:

  • Savings* and *Investments*

When we open a fixed deposit in a bank, we say, we are saving for kids school fees.

When we buy some gold, we say, we are investing for daughters marriage.

Clearly, savings is different from investing.

When we *save money*, we put it in a secure place.

And after some time period, the money *grows*

and gives us *interest*

The focus on *Savings* is more of safety of money than its growth.

Examples of savings are Bank Savings Accounts, Post office Recurring Deposits, Term Deposits, NSC bonds, PPF account etc.

In most cases, for savings instruments,

.. the growth rate will be fixed

.. the duration of the investment will be fixed.


Bank Fixed Deposit

Growth Rate: 10%

Duration: 1 Year

On the other hand, when we *Invest*, we take a bit of less safety (or increased risk)

And the motive of investing is: to take a extra risk for the sake of extra return.

So, the focus of *Investing* is to give extra returns by taking extra risk.

There will be no guarantee aspect in *Investing*.

So the risk involved can be loss of part or all of your investment.

Examples of investment instruments are:

Real estate, equity shares, mutual funds and bonds, gold and other form of securities.

So, in investments:

=> There is no guarantee of return

=> No expected time frame to get returns

=> High risk .. can give high returns (or high losses)

Also, the rate of growth will differ from individual to individual even with the same investment instrument.

For example:

Assume u and me, both of us are investing in Reliance Industries equity shares all through the year at different days.

After 1 year, if we compare, your total cost of investment will be different from that of mine.

Similarly, the returns for your investment could be different from that of mine.

All investments carry risk.

Understand the risk before investing.

The risk taking ability differs from person to person.

Do not invest in something, just because your friend or co-worker also invested in the same thing.

This is because the risk - return reward that suits one individual might not suit another.

Now let us explore this:

When should you go for Savings? and when should you go for Investments?

If your financial goal is fixed ..

and there is an obligation that you meet it,

you need to go for Savings.

For example,

At the start of the academic year,

you need to pay school fees ..

and buy new clothes for your kids.

The financial obligation on you is essential and compulsary.

It is not optional.

So when it comes to paying school fees for the next academic year ..

you have to start *saving* for that goal, right from now.

On the other hand:

if your financial goal does not have fixed time frame,

or you have a very long time frame,

or if it is not really mandatory to meet it right now,

you can invest.

For example:

I am investing in equities because I want to build a retirement corpus.

Since i am not retiring immediately or shortly,

i can take a higher risk in anticipation of a higher return.

When a loss comes in my investments..

i still can manage because ..

i have a long time till retirement so as to cover up for the loss.

But, once i retire, i can no longer invest.

Because after retirement,

i have to ensure i have a stable life all through.

So, after retirement, i have to again use *savings* option because ..

i should not risk loosing money from my fund at old age.


Would like to know if you can give a view on Averaging down if we are on loss  ?

In our upcoming lessions, i will explain about a method called Cost Averaging, which will address that.

We will discuss as to how, when and in which type of equity shares, we should use (or not use) the cost averaging approach.

I have identified two of our friends in this group.

They will share links to the complete text of every day lessons.

This lesson text will be on Dropbox and Google Drive.

The links will be shared later tonight.


Once we get to the old age, we tend to take lesser risks

In fact, we should not take risk at all. Hence, we will use savings instruments like Annuities, Monthly Income Plans etc.

Is there a thumb rule to decide how much to save or invest based on our age?

Absolutely: Life Stage Planning says:

Percentage of Debt / Safe savings = Your Age

Percentage of Equity investments = 100 - Your Age

So slowly we shift our bounty to non equity?

Yes. Every year, as we grow old, we need to move 1% of our total investments from Equities to Debt.

If my age is 30 years,

Debt funds / Savings instruments holding will be 30%

Equity instruments holding should be 70%

I hv invested some mony which is managed by a fund manager now, but i need to tell him the ratio 60-40 or 70-30 how much to be invested in debt and equity respectively.. so my question here would be if you cn let me kno the decision making factors based on which i cn decide the ratio of debt to equity..

This depends on the type and nature of investment.

Understand that, we are not taking about a single instrument, like equity shares or something.

It is about sum total of all your savings and investment instruments.

So, savings account + FD + Equity shares + Mutual Funds + Gold + Real Estate - Credit Card dues - Housing loans etc

As of now, i am yet to open my account in debt instruments😂

Debt Instruments include Savings Account, Fixed Deposit, Recurring Account, PPF, NSS etc.

I'm into this, may be for a decade or so n now an options writer along with holding equities... an interesting beginning... thanx...

This reminds me to you all that .. the amount being invested in the markets is not the only criteria.. investments almost always give good results if done properly with a long term horizon.

Thanks Vijay, appreciate your efforts and time.

My age is 40 years, but I'm not confident enough to invest 60% of my savings into equity. I feel that would be too risky for me, hoping my opinion will change after these sessions

As i said, risk holding appetite differs from individual to individual.

Save / Invest in which ever instruments you feel are good for you.

The Debt = Age; Equity = 100-Age works well when started at a young age.

Like when we are kids.. or atleast at college level .. or atleast when we stared earning

  • Assignment: Savings and Investments*

Is there any relation between time and the choice of selection of Savings and Investments? If so, how does time impact our decision making?

Please do not post assignment answers in the group. Message them personally. I will collapse and post the best answers in the group later (before the start of todays class)

Of course there is a relation between age and risk tolerance. As time passes we should reduce the weightage in high-risk investments like equity. As we approach to our retirement there should be more investments on high liquid assets like fixed deposits, debt fund, gold... at least we should transfer our investments from high volatile small/mid cap stocks to low volatile high dividend large cap investments. Where as, a much higher risk portfolio is affordable for a young professional on 30s, because funds will not be required for him for a longer period.

Time does make lot of impact on our decision making.. Because time is the thing which impact our decision making skills.. Time which for henceforth consider your age will decide your risk appetite which means if you are young and have less responsibilities you will be willing to take risk which in return means you are willing to make INVESTMENTS which involves high risk.. For example, equity markets, real estate, futures and option... But if you are aged person and have lots of responsibilities then you will prefer to less risk or for that matter no risk at all which means you would like to focus on savings rather than making risker investments.. And savings options includes bank fixed deposit, debt market, kissan pattra or gold (as for few its safe investment but actually its not)... So time as a direct relationship with our decision making criteria i.e., Younger age prefer high risks, high rewards Older age prefer low risk, secure returns

The relation between savings and investments is highly correlated. We should save atleast 30% of our income towards investments. That money which is not required for next 7 years should be kept in equities or equity oriented mutual funds. Whereas the money required for short term goals should be kept in liquid funds or fds as we cannot afford to loose them

Savings has fixed time and fixed returns and it also concentrate on safety of money, not on growth

Investing has risk with no guarantee on returns,but highly rewarded when selected at best times. Time is variable here.

Yes there is a direct relationship between saving and time and indirect relationship between investment and time. Means if you start late then your savings should be more but if you start early you can take risk and your investments should be more. As a thumb rule we should follow: Percentage of Debt/Safe savings = Age

Percentage of Equity investments = 100 - Age

This means as we grow old, every year we need to move 1% of our total investments from Equities to Debt.

Yes at the young stage we can take high risk and as early we start power of compounding will work

Young stage we can give higher portion of the portfolio for high risk investment like direct equity or small cap funds

As age increases we shift the portfolio percentage to risk free investment