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Saving vs investing: What's the difference and how to do it?

This article looks at the key differences between saving and investing. By growing your wealth rather than just amassing it, you’ll be better placed to enjoy a more rewarding lifestyle in retirement.

Everyone likes having a little bit of extra money that hasn’t been spent or doesn’t have to be spent. For some, saving is a luxury. For others, it’s a necessity. Living payday to payday is a reality for many people. But spending less money, saving more of it, then investing it to make ‘money on your money’ is one of the best ways to grow your wealth over time.

Fine in theory, but how is this actually done? How do you jump from a spending/saving mindset to an investing mindset? And what’s the difference between saving and investing anyway?

Differences matter

The difference lies in action, attitude, and intention. Saving money is more passive - you’re not putting your money to its best use, you’re just building it up, watching the numbers. It’s like doing a warm-up before exercise then not exercising.

Investing your money is an entirely different matter. Like getting fit or building muscle, to get there to build wealth - you need to do the work. Investing is putting your money to work after finding out how best to do it. You find out what extra you can get (return or interest) on your initial investment (principle), how much risk you can tolerate (your tolerance for return fluctuations), and how long you need to invest your money (your investment time horizon).

The table below shows some of the key differences and uses in saving compared to investing. Please note that the table is general information and should be used as a guide only.

Saving Investing
Usually better for short term goals (under 3 years) like a holiday or a new car May be better for larger long-term goals (5 to 10 years or more)
like children’s education or retirement
Easier to withdraw your money (subject to account rules) Harder to access – have to wait for sale to be processed
Lower risk – government guarantees deposits up to $250,000 Higher risk – you may lose all the money you invest
Earn steady interest – usually around 1-3% per month Can earn more interest in long term – around 5-10%
Interest may just keep pace with inflation Interest may outpace inflation
No minimum balance Minimum parcel of $500 (ASX)
Usually no monthly/annual fees Stockbroking or investment management fees

A growing trend

The concept and practice of investing has changed. No longer is it something for those with surplus savings. According to the ASX1:

  • 60% of Australians hold investments outside their institutional superannuation fund
  • 37% of Australian adults (about 7 million) hold investments through a financial exchange
  • Over the last five years the proportion of 18-24 year-olds investing has doubled from 10% to 20%
  • The proportion of 25-34 year-olds investing has jumped from 24% to 39%
  • 60% of all investors use some form of professional advice to help them make investment decisions.
  • Young investors are more digitally savvy

However, in its research the ASX also identified a number of concerning facts:

  • There’s a disconnect between investor risk profiles and their returns, with young investors more risk-averse than older investors
  • Diversification is still not well understood (e.g. 75% of share investors only hold Australian shares)

How to invest?

There are lots of ways you can invest - by paying your home mortgage, by investing in shares (equities), in fixed interest markets (bonds), in cash, or other less traditional assets like gold or art. You can invest a lot of money at once or a little bit at a time.

Investing your money earns you a return that takes the form of income (e.g. interest or dividends) or capital gains or losses (increase or decrease in the end value of your investment). Importantly, your investment return can be negative or positive. Investment returns typically fluctuate more when investing in shares (higher risk, typically higher returns over time) than bonds (less risky, typically moderate returns over time) or cash (risk free, low returns).


Ready to learn about your investments and avoid making the basic investment mistakes?

There are lots of options for you to explore at VicSuper that can help you do just that:

Learn more about advice or investments.



12017 ASX Investor Study
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