Some people use these terms interchangeably. However, there is a clear, defined difference. Savings implies that you set aside a specific amount of money and that money is, for the most part, going to stay that amount.
Investing, however, does not mean you will always have that set amount you contribute. Your contributions will heavily depend on the market. Your monetary investment will fluctuate, both up and down.
There are different forms of financial investments. Here are a few basic types of investments for getting started:
IRA–
This is a great way to get started investing if you’re an entrepreneur or independent contractor as you don’t need an employer to take advantage. There are two basic types of IRAs: Roth and traditional. For the sake of simplicity: Roth IRA are invested with after tax dollars and traditional IRAs are invested with before tax dollars. At this point in time, if you are younger than 50, you can contribute up to $6000 per year.
401k–
If offered by your employer, please take advantage and ask how you can start contributing. Many times, employers will match your contributions up to a certain percentage of your income. This is free money. You should at least be contributing up to that match point if you can swing it. Or work your way there.
IRAs and 401ks are similar in that you contribute to a fund that is associated with a conservative, moderate, or aggressive portfolio. As a general rule, the younger you are, the more aggressive you can be, or the riskier you can allow your investments to be because you have more time for recovery if the market dips. Investing in a riskier portfolio allows for greater reward. As you get older, you can adjust your risk towards a more moderate or conservative portfolio.
Bonds and MMFs-
And then you have bonds and money market funds which technically earns interest, but they will never outpace inflation. So is really more of a means to diversify your portfolio of other investments. You really are just loaning your money at less than it’ll be worth when the bond matures.
I think everyone over 18 should learn how to invest and workplaces should do more to help employees learn about their stock and 401k options, if available. Too often people start investing too late. I actually consider myself one of those people. I didn’t start contributing to an IRA until last year at 23. If I would have known the benefits of compounding interest and just getting started as early as possible, I would have started in college like everyone should.
marissajohnson 