Why You Should Save and Invest Simultaneously

Saving and investing are two pillars of personal finance that are instrumental in wealth creation. Your income may not continue for as long as you live, but your savings and your investments can. Therefore, it is important not to undermine these two methods of growing your wealth. Reach out to a professional financial advisor who can advise you on how to save and invest your money to have a financially secure retirement in the future.

Read below to understand why it is vital to save and invest your money, and how to strike the right savings vs investment ratio

What is the difference between saving and investing?

Saving refers to withholding a part of your income as a safety net for the future. You can do so at the bank or keep money at home in a spare wallet. You can also use savings bonds, money market accounts, certificates of deposits, etc. These instruments are low-risk with no risk of loss of capital and may offer some return. On the other hand, investing refers to using your money to purchase another asset with the intention of earning a reward. For instance, when you invest in stocks, you buy stocks. These stocks are in your possession and offer you ownership of the concerned company. However, the primary purpose here is not ownership but profit. When you sell your stocks in the future, and their value appreciates, you earn more than you spent and, therefore, get a profit.

There are several other differences between the two apart from basic definitions. Some of these have been discussed below and can help you decide the better option for yourself.

Saving vs. Investing: The difference

1. Risk:

Saving entails low risk. Your money is merely stored in an account and not invested in the market. Therefore, it is unaffected by market fluctuations. However, there may be considerable risk in the case of investing, as your money is invested in the market.

2. Inflation protection:

Saving does not provide protection from inflation. However, investing can offer protection from inflation as your money may grow higher than the rate of inflation and help counter it.

3. Purchasing power:

You do not lose your purchasing power when you save your money. However, you may temporarily lose your purchasing power with investing as you use that money to purchase another asset. While your money is still working on fetching your returns, you cannot use it until you withdraw or redeem it.

Why save and invest?

Saving and investing is essential to establish financial security for the later stages of life. They can help you cater to financial emergencies as well. For instance, you may cover your expenses from your salary right now. However, if you lose your job tomorrow, you will have to depend on your savings or investments. Likewise, since you cannot work all your life, your savings and investments will help you cover your expenses and live a comfortable life in retirement when you don’t have a salary to rely on. Additionally, the two are also helpful in catering for planned goals, such as buying a house, traveling, saving for a child’s education, etc.

Having said that, saving and investing can have some pros and cons. It is essential to know what these are to plan better. Here are some of them:

Pros and cons of savings


  • Savings are low-risk, allowing you to save your money at any age, irrespective of your income or goals.
  • Savings can be made without knowledge of the market. In fact, even children can save. Moreover, saving your money does not necessarily require an income. It can be done by homemakers, too.
  • Savings can be made based on your routine. While it is recommended to save periodically and be consistent, you can skip in between if you have other pressing needs.


  • The rate of return is relatively low from savings and may not be adequate to beat inflation.
  • You may lack the motivation to save and may skip it from time to time.

Pros and cons of investing


  • Investing can help you build wealth over time. The rate of return can be high, depending on the choice of investments.
  • Investing helps you counter inflation and retain and grow the value of your money over time.
  • Investing allows you to meet several goals steadily without burdening you all at once.
  • Investing offers simplified yet effective solutions like the power of compounding, tax advantages, employer matches, and more, depending on the type of investment you choose.


  • Investing can carry some risk. However, you can control the level of risk. There are several types of investment options in the market, and you can select anyone based on your risk appetite and goals.
  • Your money is exposed to the market’s ups and downs, which can sometimes be a source of stress. However, a long-term approach can help you tackle this in most cases.
  • You may need some basic knowledge and understanding of the market to start investing. However, you can also hire a financial advisor for help in case you need it.

Need a financial advisor? Compare vetted experts matched to your needs. Compare credentials and fees.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC. Click to compare vetted advisors now.

Does investing hold the edge over saving?

There is no single saving and investment theory that can fit everyone. However, essentially, investing may be seen as more critical than saving as it contributes to wealth creation and accelerates the process. However, it is vital to keep a balance between the two. If you look at the recent past, especially after the 2020 COVID-19 pandemic, the markets have been in a frenzy, time and again. The lockdown considerably wreaked havoc on several sectors. This was followed by market volatility induced by the presidential election, the Russia-Ukraine war, and now the impending recession likely to hit at the end of 2022 or early 2023. Political, natural, and economic events easily influence the market. Therefore, putting all your money into investments can be risky, particularly during such adverse times. You will have nothing to rely on if you lose your job during the recession and your investments tank due to the market downturn.

However, if you save your money in relatively safer instruments, like bank deposits, money market accounts, etc., you have a safety net to rely on. While there is no fixed rule to select the right savings vs investment ratio, you can maintain a favorable balance based on your needs, income, and risk appetite. It may also be recommended to change this ratio over time, based on the market dynamics. If the market is rising and you have a steady job with no immediate financial needs, you can invest more. However, if you need funds in the near future or the market seems to be spiraling, you can consider moving some money to your savings accounts. For example, if you are saving for a child’s higher education and your child is in high school and graduating soon, it may be better to move your money to a savings account to avoid any surprises so close to the goal being realized.

How can you create the perfect saving and investing blend?

If you are wondering when to stop saving and start investing, or vice versa, you must analyze your goals first. There may be times when you may require the former more, while on other occasions, the latter may prove more beneficial. Here are some situations/goals and how you can plan for them:

1. Keep an emergency fund

The emergency fund is a fund that you use in your hour of need. If you lose your job, have a health emergency, your house is damaged, etc., you will require immediate funds. Therefore, an emergency fund should always be easily accessible. The instrument for the same should be low-risk with no redemption rules or penalties. For instance, a savings account lets you withdraw your money easily anytime you want. It carries no risk, either. This is why it makes for a good emergency fund. However, a 401k would penalize you for an early withdrawal before the age of 59. Hence, this would not be ideal for an emergency fund.

2. Maintain a retirement fund

Retirement planning is one of the most important financial goals for any individual. It can take years to accumulate enough funds for your older years. However, since this is a long-term goal, investing your money over saving may be better. A long-term investment horizon allows you to ride out short-term market volatility, enabling you to lower risk and earn more. You can invest in a combination of different instruments like the 401k account, the Individual Retirement Account (IRA), stocks, mutual funds, real estate, Exchange-Traded Funds (ETFs), and others. Investing your money for a goal like retirement will also ensure that you are able to tide over inflation. One of the reasons why investing is important is that it helps you counter inflation. Since you would be using this money way ahead in the future, investment can offer you inflation protection and strengthen the value of your money.

3. Focus on debt reduction

You can save money if you have too much debt and need to settle it. Saving can be ideal for short-term goals, such as debt reduction. You can startby lowering your expenses and increasing your savings rate. Your savings can then be used to clear your outstanding debt. However, savings may be more beneficial to settle an existing debt. If you need to avoid taking on debt in the future, you will benefit more by investing your money for specific goals.

4. Consider purchasing a home 

Buying a house can be a massive investment. The purchase value is significantly high, and you need lump sum funds to make the down payments. In such a case, the ideal course of action can be to save and invest together. The savings can help you with the down payment. In contrast, the investments can help you focus on other goals like retirement, children’s education, healthcare, and more, along with paying the installments for your home loan or mortgage.

While these are only some situations, you may be faced with several others. A standard saving and investment theory that you can follow here is to save for short-term goals and invest for long-term purposes. While this may not always be accurate and does not apply to all situations, it can be useful and help you make a decision. There is no hard and fast rule here. However, in most cases, due to their low risk, savings may be ideal for short-term needs. On the other hand, investing can be suitable for long-term goals like retirement, a house purchase, a child’s higher education, etc.

Additionally, if you find it hard to understand what to choose when, you can consider hiring a financial advisor. With professional expertise and experience, the advisor will be able to help you pick the most appropriate option per your needs.

To conclude

Saving and investing are two critical components to ensure financial security and avoid unwarranted financial stress. However, it helps to understand their relevance, use, and benefits. Ideally, you must use them both in unison to create a steady flow of money. However, at times, you may have to rely on one more than the other. As long as you are clear on the fundamental difference between the two, you can make the right choice.

If you face any challenges, consider getting in touch with a financial advisor for help and guidance. Use the free advisor match service to match with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.

Other posts from Paladin Editorial

Leave a Reply

Your email address will not be published. Required fields are marked *