Saving and investing are not the same thing — though people sometimes use those words interchangeably. Knowing the difference, and when to choose each, can help you reach your financial objectives. In the end, a mix of both may be the optimal strategy.

1. Define your goals

When you are saving, you are concerned primarily with securing your money, while not losing any of its value. Typically, savings are earmarked for an emergency or a short-term goal. While saving money may preserve your money’s nominal value, opportunities to grow your money are limited.

When you're investing, you give your assets the potential to grow over time. You typically reinvest your interest, dividends, and capital gains earned. Often you are prepared to take a little more risk with investment money than you are with your savings. With the opportunity for growing your money comes the risk that your account value may decrease. If you have many years before you need the money to reach a goal, such as your child's college education or your retirement, you may have time to recover from small decreases in value.

2. Find the best place to save

When you save, you may want to consider a low-risk place to put your money. Depending on your choice, you might earn interest or you might not. How much interest you earn may be less important than preventing any loss of money or having access to your money on short notice without penalty.

Here are potential choices you may want to consider for your savings:

  • Savings accounts
  • Money market accounts
  • Money market mutual funds
  • Certificates of deposit (CDs)
  • U.S. government securities, such as savings bonds

3. Explore investment options

When you invest, you are buying an asset that you expect to grow in value. Since the value may fluctuate, it’s best to invest money that you probably won’t need in the near future. You will want to be able to sell when the market conditions are favorable, not on short notice.

You have a host of investment choices, including:

  • Individual securities — such as stocks and bonds
  • Pooled investment products — such as mutual funds and exchange-traded funds (ETFs)
  • Real estate
  • Taxable or tax-deferred accounts — such as 529 plan education investment accounts or IRAs
  • Nontraditional investments — such as precious metals

Find investments that fit your goals, time horizon, and risk profile. If the investments you choose make you nervous or uncertain about your future, you may be in an investment profile that’s too aggressive for your risk tolerance.

Getting the most from your money means understanding the difference between saving and investing — and how to use both. Saving alone may not provide the opportunity to grow your money at a sufficient rate. Yet, relying solely on investing could leave you without easy access to enough money in an emergency. Understanding the difference between saving and investing helps you put your money to work toward your goals.

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