You’ve found yourself in possession of a cartoon-like bag of money, complete with a dollar sign stitched on the side. Being the intelligent person you are, you’ve decided not to spend it on some impulse purchase – good idea.
So, if you’re not going to spend it now, then what’s your plan?
Looking to the future, you’ve got three options:
For many, the above choices are almost indistinguishable, which is understandable – there is overlap. In fact, it may be better to look at these options as points on a spectrum, with saving at one end, and speculating at the other. Where exactly saving becomes investing, or investing becomes speculating, is a bit of a grey area.
Despite that grey, knowing the difference between saving and investing can help you navigate the tricky waters of financial planning. And, the only way to ensure lasting, independent wealth, or as we call it, infinite wealth, is by creating an intelligent financial plan.
Let’s take a look at the spectrum to draw some guidelines that will help differentiate savings from investing, from speculating.
Saving Your Money
This is perhaps best typified by Scrooge McDuck. Who knows how the shrewd duck got his money, but we all know where almost every gold coin he made went: straight into his vault so he could swim in it. That’s pure savings.
The Purpose of Saving
Scrooge’s vault was big and secure, so he knew every gold coin going in would stay in there forever. That desire, which is essentially the push for security, is the driving force behind savings. However, few people are quite so strict in their savings regime, which is for the best. For today’s saver, the bank’s vaults are preferred over the personal. However, whether you do it Scrooge’s way, or stuff it in a savings account, you’ll end up with inflation eating away at your savings, because these usually have a rate of return that just barely, if at all, eclipses inflation.
Saving is for the Short Term
Unlike Scrooge, most savers are focused on the short term. In other words, they have their eyes on a prize, something they want to purchase. But a single bag of gold coins just won’t do the trick. Instead, they need two, or even three, bags of coins. So, each time they get a bag of coins, they put it away until they have enough money to purchase the prize they want, whether that be a car, a house, or a big vault with a money symbol on it.
Speculating with Your Money
Let’s jump to the other end of the spectrum. If you really want a Sunday morning cartoon to exemplify speculating, perhaps the best would be Yosemite Sam. Not so much because the man is into short-term investments, but more, because he is so volatile. And that is the key word when it comes to speculating.
The Purpose of Speculating
Speculating has no security, but what it lacks in making investors feel safe, it (maybe) makes up for in opening the possibility of fast money. Speculators are usually looking for the quick buck, trading their security to play in volatile markets where dollars are made and lost very quickly. This makes things very exciting, just like going to a casino, but can do great damages to your finances very quickly. Day-trading could be a great example of speculating, and if there’s any cartoon character we believe would be into speculating, it would be Yosemite Sam, and his trigger fingers itching to make a fast dollar.
Speculating is for the Short Term
Speculators are in it for a quick buck, which means they’re in it for the short term – usually less than a year, and sometimes drastically so. Their money goes in, the stock rockets up, and their money comes out. Or at least that’s the hope of how things go. There is often an equal or greater likelihood of the investment rocketing down or going nowhere. But, it’s the possibility of making that big win, and drastically increasing your wealth in a short time, that keeps most speculators coming back.
Investing Your Money
As we move back into the centre of the spectrum, we find investing. Unfortunately, there’s no cartoon character that typifies investing. Investing is a moderate, mature way of handling your saving, putting it out of reach of Sunday morning cartoons.
The Purpose of Investing
Investing is for those with clear eyes and a purpose: to grow their investment and ensure a comfortable future or retirement. This takes a lot of careful consideration, patience, and the right investment choices.
Investing is for the Long Term
Investments and markets can be volatile in the short term, where the speculator lives, but properly chosen, over the long term, investments will grow if allowed to mature. If the investor can see past temporary spikes and valleys, and leave their money in tried-and-true investments, along with a few that are perhaps a little riskier, they can earn a rate of return that outstrips inflation, and keeps them safe from the volatility of the market. This gives the future a rosy, cartoon-like tinge of riding of into the sunset. What a nice thought.
Where Do You Sit on The Saving, Investing, Speculating Spectrum?
At Bayview Financial we specialize in helping you find your way on the spectrum. While we tend to shy away from pure savings, or the utter chaos of straight speculations, we’re here to listen to your goals so that we can help you create the perfect financial plan of sustainable wealth and a prosperous financial future.
Contact Bayview Financial today so we can help you decide on the best way forward for you and your money.