Content Brief

Objective: Educate people on key differences between saving, trading, and investing, helping them make informed financial decisions based on their risk appetite, financial goals, and investment horizon.

Target Audience

• Young professionals looking to build wealth
• Salaried individuals seeking financial security
• Aspiring investors interested in wealth creation

Keywords

• Saving vs investing vs trading
• Best investment options in India
• Safe investments with high returns
• How to start investing in India
• Financial planning for beginners
• Stock market trading vs long-term investing
• Wealth creation strategies

Tone & Style

• Informative and analytical
• Engaging yet professional
• Actionable with clear takeaways

[Note: All images have been taken from Pexel to avoid copyright issues]

Saving, Trading, Or Investing — Which Is Right For You?

To paraphrase Robert Kiyosaki: “Let your money work for you.”

Sure, we’ve all heard this.

But what does this mean for those who are not so well-versed in financial matters? 

After all, if it were so easy to grow one’s wealth, wouldn’t everyone have done it by now? 

And no one would need to talk about how to save money or create wealth for future retirement plans, a downpayment on a new house or car, or your children’s education. 

So, the question is: “Savings, trading, or investment — where to invest my money?” 

No matter what your age, your experience in handling money, or your knowledge of money matters gathered from the media or online resources may be; it’s clear to most adults that setting aside some money as “savings” is essential, while the other two have more variables to consider. 

And more variables equate to more risk. 

But then, we’ve all heard of the adage: No risk, no gain. Playing it safe doesn’t always bear fruit — at least not if we want our money to work for us!

So, if you’re still wondering where to invest money to get good returns, whether there are any safe investments with high returns in India, or if trading or investing is even the right move for you at this juncture of your life, trust us when we say we can understand your sentiment. 

That’s why, in this article, we’ve tried to delve into the three basic and well-defined modes of financial planning — Saving, Trading, and Investing — and discussed their upsides and downsides in the light of the best investment options for an average Indian keen on wealth creation and management. 

Let’s Start From Scratch: What Is Saving, Trading, And Investing?

Before we get into the nitty-gritty of these financial building blocks, let’s review the basics for absolute clarity.

Savings 

You can set aside a certain portion of your income for a rainy day or more significant plans for the future. It could be anything from a medical emergency to a downpayment for a new house or a vacation. 

Now, if you choose to simply put ALL your money in savings accounts or fixed deposits (FDs) or rely entirely on PPF and other retirement plans to secure your life after your 60s, you would probably end up with a very small fortune from the interest you would accrue for the money you managed to set aside over the years. 

Obviously, that won’t be sufficient financial gain for the amount you had set aside. But of course, it also means that there is relatively far less risk of losing money owing to the fluctuations in the stock market — as would be the case with trading and most investment plans. 

Trading 

If you’re a high-risk, high-gain kind of person, trading is exactly what would suit you. Trading refers to buying and selling securities, such as stocks and bonds, over a shorter timeframe (sometimes a mere couple of hours!) on stock exchanges like the BSE/NSE to take advantage of erratic fluctuations in the market. 

Since trading involves high risks, it may result in higher returns or hefty losses. So, if your financial situation allows you to have a good risk appetite, this is definitely a good wealth-creation choice for you. 

Investing 

If you’re someone who is willing to take a bit of risk and is patient, with your vision set on the farther future, investing is the best middle path that offers the best of both worlds, enabling you to accumulate much greater financial gains over a relatively longer period and a relatively safer way. 

Note: The key difference between trading and investing lies primarily in the period for which you own the asset. When you invest your money in something like equity mutual funds, the aim is to allow the security’s value to appreciate over a longer time, thereby contributing to your financial growth. 

Such long-term investment plans offer a comfortable cushion for you to rely on for wealth creation and the benefit of the advice of a financial consultant, irrespective of whether you choose to take the risk of trading in the share market. And if you do take such a risk, you still have your investments to ebb over a potential rough patch in the future. 

Can You Get Rich Just By Saving A Lot?

Short Answer: NO. 

While you do need to save a certain portion of your paycheck for future financial security, it is extremely challenging to get rich by just putting aside some money each month. 

As we have already explained, savings accounts or fixed deposits typically do not generate high returns because they are a so-called “safe” option, and their interest rates are usually minimal. 

Note: There’s always a direct correlation between the level of financial risk you’re willing to take on and how much you profit from it. 

Besides, you also need to account for inflation in order to ensure you’re not getting the shorter end of the stick with savings. 

Let’s assume you have Rs. 100 in hand, and the inflation each year is 4%. In other words, the value of goods and services will also increase by 4%. 

So, after one year, the purchasing power of Rs.100 will drop to Rs. 96, meaning that even if you have Rs. 100 in hand, you can only buy items worth Rs. 96. 

Extrapolating this over, say, a five-year period, the “value” of Rs. 100 will drop to Rs. 81. 

Thus, even if you do save Rs. 100, it won’t do much if the rate of return does not keep up with the inflation. 

What Are The Advantages And Disadvantages Of Trading?

Trading requires you to be proactive about which stocks/bonds to trade, and you also need to be up-to-date in order to profit from the market’s short-term volatility. That is also why it carries with it certain risks and benefits that you should know about. So, we thought we should shed some light on it. 

The Benefits Of Trading

• Quick Gains: Trading allows individuals to profit from short-term fluctuations, and those who understand the market dynamics well can make good returns in a much shorter time frame.  
• Flexibility: One of the biggest benefits of trading is that your money isn’t going to be tied up in one spot for too long. So you can make timely changes to your portfolio based on ‌current market conditions. 
• Diversification: You can spread out financial risk by diversifying your assets into stocks, bonds, commodities, derivatives, and whatnot! And if you know what you’re doing, this may help protect your portfolio in a volatile market. 

The Problems Of Trading

• Transaction Costs: Short-term trading can have additional fees, such as brokerage fees or commissions, associated with them, meaning the total can add up every time you buy/sell equity. 
• High Risk: Trading is NOT for the risk-averse. Prices can quickly go up or down at any point in time. If you aren’t ready to cope with such an ever-changing market climate, you can lose out not only on the expected returns but also on the principal amount.
• Emotional Distress: Having to constantly navigate an evolving market also means trading can be an emotional rollercoaster for many people. Negative emotions like anxiety, panic, or greed that are quick to creep in may also impact one’s decision-making ability and affect how much they earn.  

Now, Let’s Talk About Investing…

If trading requires you to be highly active and manage securities often, then investing affords you the “luxury” of putting your money into specific assets and assessing how they perform over a longer period of time. 

But what are the pros and cons of doing so? Let’s talk more about this. 

How Are The Upsides To Investing? 

• Long-Term Convenience: You don’t need a huge amount of money to begin with. Besides, there is no right or wrong time to invest, so you can still maximise your returns without constantly monitoring the market every second. 
• Income Generation: Some investments, such as dividend-paying stocks, can provide you with additional streams of income without much effort on your part. 
• Reduces Risk: When you invest over a longer period of time, the volatility of the market no longer threatens your money in the same way as it does with trading. Historically, the stock market has constantly beaten the rate of inflation, which also ensures your money actually grows in value.
• More Tax Benefits: Long-term investments typically come with tax relief. So, no matter which tax slab you fall under, you can always avail yourself of tax-saving benefits by investing in the right investment plan and for the right duration.

What Are The Downsides To Investing?

• No Guaranteed Returns: While the correct investment strategies can be rewarding, there’s no such thing as a “guaranteed return” if you invest. Depending on the asset’s performance, market volatility, and other economic factors, you could lose out on all your money if the stock isn’t doing well. 
• Lack Of Liquidity: Ideally, with most investment plans, you are required to park your money over a longer period of time to see any significant gains. And that means you need loads of patience and perseverance. You can’t expect quick returns and can’t afford to get perturbed by fluctuations in the market. The further you invest and allow your money to grow beyond your lock-in period, the higher your long-term financial gains. A good investor must be able to ebb over stormy seas and see the bigger picture.

Choose The Right Strategy To Ensure Your Financial Success! 

Saving, trading, and investing are different concepts — all of which have a lot to offer. Whether or not each aligns with your future financial goals depends entirely on how you choose to utilise them. 

Any salaried man worth his salt knows that saving is a MUST for contingencies and future financial security. However, investing in good long-term plans like MFs is a healthy option for wealth creation. Of course, there are other short-term, high-risk investment options that can, along with trading, allow you to build a good financial portfolio. But the latter depends entirely on your risk tolerance. 

To sum it up, while saving is an obvious necessity, investing and trading are choices that will define how well you make your money “work for you”. 

Investing offers a good opportunity for relatively stable financial growth (of course, with some risks), while trading can be an option you can take on ONLY if you can afford to set aside some money with your eyes wide open to the fact that you could quite easily win big or lose big, as well. 

Naturally, trading is obviously a more volatile and risky choice compared to investing. But the gains can also be substantially higher if you can manage to make the right decisions at the right time (that’s possible with some trading knowledge under your belt). But remember, you won’t have the buffer that a good investment plan can offer for your long-term financial health. 

Note: Never take these decisions lightly. Weigh all your options carefully and select options that are best suited for your current age, future wealth creation plans, and your risk appetite. 

You may even consider talking to a professional for a better, in-depth understanding of where to invest money to get good returns.