Are you Saving or Investing?

This question of saving vs investing is one I ask all my clients when they want to discuss college planning or retirement.

If you never really asked yourself which you are doing, now is the time to look in the mirror.

Let's define the two starting with Investing. This entails taking current cash flow and placing it into some asset regardless of what asset expecting a higher value in the future to which you would be able to derive future cash flow from or sell it for capital gains to convert that to future cash flow. Saving on the other hand encompasses slow steady putting aside current money for use in future events to pay for certain things or events.

The two, investing and saving both have one thing in common, current cash flow. This is where the similarities stop. Investing is hoping the asset increases when and where you need it in the future. Savings is knowing the asset will increase when and where you need it in the future.

If you segregate your current cash flow into investing and savings, then you are better balanced for the future. How can we do this?

Investing should focus on long term growth in smart, low capital-intensive businesses, stocks, assets, etc. Savings should focus on putting aside current cash flow into very safe, always increasing at a conservative rate to keep up with inflation future serving dollars.

Investing and savings, neither can be discussed without delving into a conversation on taxes today and in the future. When investing under current tax laws, the assets are taxed according to the whim of Congress at the time. Long term and short-term capital gains come into play based on how long you held the assets and which assets you hold.

If this thought of savings vs investing interests you, we would love to continue this conversation with a deeper dive over a meeting, so please feel free to get in touch.