Savings and Investments

Getting into the definition: Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.

Why do savings play such a crucial role? I guess during the COVID period, everyone realised the importance of savings. Savings actually backs you up like your parents did during your adolescence. Go, learn, explore. If something goes wrong, I will be there for you.

Savings constitute any form of money or equivalent saved by you. In simple terms, your income, less expenses, is your savings. People may save for various life goals or aspirations, such as retirement, a child’s college education, the down payment for a home or car, a vacation, or several other examples. You need to save first if you need to grow your financial assets.

If one is unable to maintain savings, they may be said to be living pay check to pay check. If such a person experiences an emergency, there is often not enough money saved up to live on and they may risk falling into debt or bankruptcy.

Suppose, for example, you save a lot. Is that going to help you out, actually? Probably yes, during an emergency or so, but that is not what’s meant for you. The ideal cash you have in your savings actually needs to be channelized in such a way that your money actually gets multiplied over a given period of time. The process of actually channelizing the funds is called investing. Investing comes with a risk, i.e., in the case of money not being invested properly, it may lead to losses where you might actually lose a part or a major chunk of your savings as well. But as said, ships are safest on the shores, but that’s not what they are meant for. So, investing does come with a risk, but it is necessary to evaluate the risk properly so you can reap the rewards later.

Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavours, such as using money to start a business, or in assets, such as purchasing real estate in the hopes of reselling it later at a higher price.

In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. Risk and return expectations can vary widely within the same asset class. A blue-chip that trades on the NYSE and a micro-cap that trades over-the-counter will have very different risk-return profiles. The type of return generated depends on the asset; many stocks pay periodic dividends, while bonds pay interest every quarter.

Investors can take the do-it-yourself approach or employ the services of a professional money manager. Whether buying a security qualifies as investing or speculation depends on three factors: the amount of risk taken, the holding period, and the source of returns.

There are some common types of investments. They are as follows: