Investing Savings and Trading

PERSONAL FINANCE AND INVESTING

the difference between investing, trading and saving

Are you saving yet?

Many people use the terms savings and investing interchangeably, they are not the same thing. Saving is when you put your money into a safe low risk investment like a savings account or a high interest money market account, where there is very little risk to the money you have to invest.

Investing is when you are putting the money you have to invest into an asset which may do up or down in value, for return higher than a high interest savings account, in return for taking some risks.

Investing is when you are using your savings to select and buy an asset that you expect to appreciate in the medium to longer term, enhancing your capital value. This asset may go up or down in value, but will produce a return higher than that of a savings account, in return for taking some risks. Investment decisions are usually based on fundamentals of that asset that are investing in.

Putting money into a high interest account to buy a car is saving your money, whereas putting your money into a unit trust or a mutual fund to generate a nest egg sometime in the future is investing. When you have money to invest, you should always seek some professional financial advice.

Investing vs Trading

What is the difference between investing and trading? Sometimes they use these terms interchangeably but they do mean completely different things. If you are a serious about managing your own money and the risks associated with it, you need to understand the difference between these two terms.

With trading, the biggest difference is the time frame. Traders are typically very short term investors, sometimes buying and selling their positions on a daily basis and sometime more than a few times in a day. They typically make investment decisions based on charts and the trends they are predicting and they are sometimes called chartists. Day traders also try to time the market, buying low and trying to sell high, quickly and as often as possible.

Successful traders closely watch prices and trends and have a lot of courage to make quick decisions. Trading can be more expensive than investing as you make many more transactions and incur a lot of trading costs. Day traders will trade in many categories of assets from foreign exchange, options, commodities, financial futures to stocks and bonds.

When you invest, you are looking at holding an asset for the medium to long term, typically for a minimum of 3 years. You would buy shares in a company that has good business prospects and you think that your shareholding will be more valuable over time and you will be rewarded with high dividends and a higher share price. You could also invest in less liquid assets like real estate, collectible, gold, diamonds, comic books and other assets with value. Investors usually pick their stock market investment by looking at the fundamentals of a company, they study the financial statements and the potential of the industry to make their decision.

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PERSONAL FINANCE AND INVESTING

the difference between investing, trading and saving

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