What is the difference?
Saving and investing can both help you achieve financial goals. Saving is most suitable for smaller goals within a short time period. Saving can also help prepare you for an emergency, such as a job loss. Investing is more suitable for bigger, longer-term goals.
When you save, you put cash away in a safe place where you can access it easily. For example, you might put it in a savings or chequing account at your bank. Saving through a Canadian bank is very safe because the Canada Deposit Insurance Corporation (CDIC) automatically insures up to $100,000 of your money.
Depending on what type of bank account you put your money in, you may earn some interest on it. The goal of saving money is not to earn interest. The goal of saving money is making sure you can access cash easily, any time you need it.
How much should you save? As a general rule, you should save at least enough money to cover your living expenses for 6 months. This way, if you lose your job, you will still be able to pay your bills, feed yourself and your family, and buy things you need. You should also save enough so that you can reach any short-term goals you have, such as saving enough for a down-payment on a new home.
Investing is very different from saving. You do not simply put your money away somewhere safe. You use your money to buy assets – for example, stocks, bonds or real estate – that you hope will earn you a good return over time. With most investments, you cannot take out money easily or quickly in an emergency. That is why it is so important to also have savings.
There is usually some level of risk with investments. Some investments are low risk, some are medium risk, and some are high risk. Generally, high-risk investments offer the possibility of higher returns than low-risk investments. But you can also lose more. All investments offer the possibility of higher returns than a regular savings account.
Once you have decided you are ready to begin investing, you will need to set some investing goals. For example, you will want to consider what financial goals you want to achieve, and when you want to achieve them. You will also need to think about how much risk you are willing to take. Once you have done this, you can start to think about the types of investments you are interested in.
In general, it is good to diversify your investments. This means investing in several different industries and geographic regions at once. When you diversify your investments, if the value of one fund drops because of economic issues in its sector or region, you only lose part of your investment, not all of it. Diversifying can help lower the risk of investing.