saving is a passive way to insure the safety of the principal, and
though it accrues interest, it is less concerned with return. Investing
on the other hand, is a more aggressive and proactive way to use
your money in order to make even more money; you want your money
to work for you. Unlike savings, the focus of an investment is on
the return which is based on the level of risk involved. Risk can
range from conservative to very aggressive. Sometimes it can be
difficult to distinguish between saving and investing; however,
there are three characteristics that set investing in stocks apart
from saving: ownership, upside potential, and risk.
Buying or investing in stock makes
you a part owner of a company which gives you certain rights,
such as, voting and receiving dividends. There is no means of saving
available that gives you ownership. For example, you may own a bank
CD but you don't own part of the bank.
Potential. When you invest in stock,
you do so because you are betting that the company will grow, increasing
the value of both the company and its stock. Savings on the other
hand, gives you a more consistent rate of return. A CD paying a
rate of 3% will continue to pay 3% regardless of how well the bank
Because of the potential risk involved
in investing, the potential for reward is also higher. And because
of the security associated with saving, the return is much lower.
It is up to you to decide how much risk you feel comfortable with.