Many people do not understand that there is a difference between saving and investing. One may think that these words mean the same, but the outcomes are vastly different.

Savings speaks to the accumulation of funds for the short term such as saving for a holiday or new golf clubs. This is normally done through a bank such as a savings or money market account and one’s funds attract “interest” which is paid monthly or annually at a lowish rate, depending on how long your funds are tied up for.

Investing is done over the long term through buying equities (shares or stocks). These investments deliver a real return (return above inflation) over time which is substantially higher than cash.

We always hear that investing in equity is more volatile than any other asset class, but it is the best way to grow one’s long-term wealth. By not investing in equities, the risk we face is running out of money in retirement and our funds losing their spending power by not outperforming inflation.

The graph below shows the return of different asset classes over the last 92 years in real terms. This means, return minus inflation is the actual amount your funds grew by

The difference between saving and investing

A lot of people feel safe and secure by having the funds in cash but as you can see from the graph, you actually end up saving yourself poorer. Cash is the perfect vehicle to place savings for your short-term goals and your emergency fund but having too much in cash can work against your long-term goals.

So for your wealth to grow, you need to invest in equity. If this sounds scary, you get in contact with us and we can help you understand how this relates to your long-term Lifestyle plan and why you need not fear but embrace this type of investing.

Dirk Groeneveld, Certified Financial Planner

t. 083 261 9287


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