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Save and investment are not the same

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Save and investment are not the same

Do you want to buy a house?

Enjoy a supplement to your retirement pension? Then learn how to get the most out of your piggy bank! If you saved a few hundred euros and want profit, we are going to show you how to invest. 

To get started, you need to understand the difference between saving and investing. Saving is deferring consumption. Reserving part of our money to use it in the future. Investing, on the other hand, is putting the money we have to work, so that it generates a return; more money.

Both saving and investing involve deferring consumption but differ in intention. Diego Morales from the financial department of Aspain 11, one of the companies that guide investors. assures that 

“With the savings, we hope to have the same capital in the future. While investing, we hope to have that money, in addition to an extra. And this is not always guaranteed ”

First: what is your investment goal?

Paula Satrústegui, a partner of the Abante wealth advisory entity, mentions a keyword: OBJECTIVES. You must know what you want to achieve. Whether you are saving to go on a trip next summer, buy an apartment in a couple of years, pay for your child’s degree in the medium term, or prepare for your retirement in time. Each purpose has different ways of investment. Each investment will require a minimum amount to start, ranging between 500 and 1000 euros.

For these objectives, there are two essential factors: the amount you want to achieve, and the length of time you are willing to wait to achieve it. 

You should also take into account:

  • your tolerance or aversion to risk: Can you afford to lose some of the money in the process? Would you prefer to earn less and reduce loss risk? Discover your investor profile here.
  • Your liquidity needs: Do you think you will need to withdraw the money during the investment time?
  • Your current life situation: How much real-time do you have for saving?

The answer to these questions, with the help of an advisor, will help you choose the best investment.

Is it essential to invest to win?

“The advantage of saving is that our money is safe and easily available. In addition, we already know our interest rate. The drawback is that, currently, a very low or almost zero profitability is obtained.”

Laments Francisco Palomino, Renta 4 Bank’s investment advisor. Therefore, you have to invest to win. Find out the cost of your savings with this calculator.

Until a few years ago, financial institutions offered remunerated checking accounts or deposits. These had a guaranteed return after a fixed term. This allowed clients to leave the money still in the bank; they achieved an average acceptable return.

However, the current low-interest-rate policy of the ECB (European Central Bank) has made these savings hardly profitable, so they are not very advisable. Paula Satrústegui recalls: 

“If we only save, putting our money in a piggy bank or in an account that without profitability, it will lose value due to inflation, as time passes”

What can I invest in?

We already mentioned remunerated accounts and time deposits. But they are now in disuse due to their zero profitability. The most typical products to get a return are:

Fixed rent

Although no investment is risk-free, fixed income is. This is an investment used mainly by conservative savers. They settle for fewer gains, in exchange for reducing loss risks. It is buying debt; be it public (bills, bonds or State obligations) or private (debt issued by companies). Fixed income does not have notable tax advantages.

Variable income

It is about buying and selling stocks in the market. It is for investors who are willing to risk more. Both to achieve better returns or lose more money. The profit can come in two ways: through the increase in value and through the collection of dividends. (the part of the profit distributed among the shareholders of a company). Like the fixed one, it does not offer tax advantages.

Investment funds

Investing in different assets at the same time. The most common investment funds focus on a fixed income, equities, or a mixture of both strategies. There are more classes, depending on the risks you take.

Exchange-traded funds or ETFs

A product in which mutual funds and stocks are mixed. Like the former, it has a varied portfolio of assets. In this case, these assets are usually the copy of the securities that make up an index. For example, the Ibex 35. They are like shares because they are listed on the Stock Market, and they can be bought at any time in the market. There are assets of variable and fixed income. You can also find ones that replicate indexes of materials: gold, oil, coal, palladium or lithium.

Learn to investment

Follow these tips to learn how to invest.

  • Have an eye to the long term, that is, three, five, ten years, or more.
  • Allocate only the money that you will not need in the short term.
  • Go little by little. Create a habit, with small and regular contributions over time.
  • Diversify between the different investment vehicles at your disposal. Stay and among the ones that best suit you.
  • Control the risk percentage of your investments. When difficult times come, remain calm. 
  • Accept advice from the financial advisers who gain your trust.

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