While saving offers easy access and security to your money, investing helps you in creating wealth by providing higher returns. Your decisions to choose between saving and investing should depend on your financial goals.
Money doesn’t multiply on its own. One needs to make wise decisions and park your hard-earned money at avenues which give good returns. There is always a traditional method of saving money in the bank or saving in a financial tool for a short-term interest. But they provide a lower rate of returns and that won’t serve the purpose.
However, if you are really serious about creating wealth, you must consider investing your money for a longer period of time. The simple logic is to earn higher returns over a long and sustained period of time.
There are some time-tested advantages of investing than savings. Have a look.
Investing Helps You Enjoy The Benefit Of Compounding:
Parking your money in a Savings Bank Account may just give you an interest of about 4% and this is not the way to create wealth. Instead, choose to invest specified sums of money for a longer duration to enjoy compounding benefits.
Compounding generally means reinvesting your profit, which in return gives greater profit in the long run. Compounding on an Investment done frequently creates bigger corpus generating wealth, and the amount doubles in lesser time.
You Save On Taxes:
Investing over a long period of time also helps you save taxes. If you are a regular trader, who buys and sells shares over a short period of time, you are taxed at 15.45% on your Short Term Capital Gains. Investing in equity for the long term—12 months or more—makes your Long Term Capitals Gains even more tax-efficient, as you’re taxed at 10% on gains above Rs. 100,000.
Your Risks Drop Over A Long-term Investment And Give You Higher Returns:
Financial markets are dynamic in nature and keep changing over time. Hence, a saving or a short-term investment which once looked lucrative may turn out to be a lost cause at a given time due to market volatility. But when you invest your money over a long duration rather than just save money on a short-term financial instrument, you tide over the market risks, its volatility and make good of the opportunities that come during the tenure. In the long run, you tend to earn higher returns on the long-term investment.
You Also Save Money On Various Expenses:
Interest on a savings or short-term investment may get reduced or eroded fully due to the charges levied for various services offered on it. But in a long-term investment, commissions will be a small margin on the long-term capital gain. Besides, long-term investment also helps you save money on expenses such as transaction fees for active trading.
Hence, it makes sense to invest over a long duration to accrue higher returns and earn more benefits.