- 14/03/2022

The difference between saving and investing

9 min

Saving and investing: what’s the difference?

Saving means opting for a certain level of security

When you choose to save, you decide to keep a portion of your income 'safe'. You build up a financial reserve to cope with a setback, absorb an unexpected expense, finance your short-term projects when other forms of financing are not feasible, or simply to do 'something' with it later. Your savings account is even protected by the Belgian Deposit Guarantee Fund, which guarantees up to €100,000, in the event of your bank's bankruptcy.

However, most savings accounts only earn the minimum legal interest rate, which is insufficient to keep pace with inflation.

Investing means aiming for a better return on your savings

When you invest, your goal is to make your savings grow as much as possible over time. This requires taking on some level of risk, but in return, the long-term return may be higher than that of a savings account.

A significant portion of these risks can be mitigated by diversifying your investments. For example, you can spread your investments across several funds, a financial insurance policy, stocks, bonds, and other assets.

You don't invest in the same way that you save

Your personal situation

The starting point for determining whether to save or invest – and indeed for addressing any financial question – is to assess your current financial situation. Consider your age, whether you already own a property, and if you have any short-term plans or projects that require a savings reserve. Also, take stock of your current savings account balance. Once you have a clear understanding of these parameters, you’ll be able to make an informed decision. Your bank can also provide guidance, as everyone's financial needs and circumstances are unique.

Have you already taken out a tax-advantaged savings plan?

To begin with, tax-advantaged savings, such as pension savings or long-term savings, are likely to be the most beneficial option. Why is this? Because tax-advantaged savings are, in effect, a gift from the government, allowing you to claim the capital you have saved during a given year as a deductible expense on your tax return. As a result, you can put money aside while also reducing your tax liability on your next tax return. This means you can enjoy a double benefit. It is worth noting, however, that the money invested in your pension savings is typically locked in until you reach retirement age.

How to react to market fluctuations?

When you choose to invest part of your savings, regardless of the type of investment, you should always maintain a medium- and long-term vision. It's always possible that certain investments will fluctuate periodically. Be patient: as long as you don't sell, you won't lose. Periods of decline are usually followed by periods of growth. Keep in mind that investing is a long-term game. Investing regularly by setting up regular payments is a good idea, as it allows you to smooth out your investment over time and, consequently, the fluctuations.

So be prepared to invest for a certain period of time without earning any returns, or even to endure a negative return, because it's only in the medium term that an upward trend can emerge. Does the curve drop at a specific point? Keep in mind that this can potentially create opportunities.

You can already invest with a small monthly amount

The first step is to determine the portion of your savings that you can comfortably set aside for the next few years.

You don't need to invest a large sum of money all at once. You can start investing with as little as one euro per day. The benefit of spreading your investments over time is that you can ride out market fluctuations. One month, you buy investments at a slightly lower price, the next month at a slightly higher price, so that the fluctuations tend to average out over time. By doing so, you'll gain hands-on experience and develop your own investment strategy.

Create a financial reserve before investing

What is a financial reserve?

It's a cash reserve that you keep on hand to pay for unexpected and essential expenses when they arise, without having to adjust your lifestyle. It guarantees you financial security even before making plans to invest your money in the long term. To achieve this, you only need to set aside a limited amount in your savings account.

What is the ideal financial reserve?

It's a cash reserve that you keep on hand to pay for unexpected and essential expenses when they arise, without having to adjust your lifestyle. This guarantees you financial security even before making plans to invest your money in the long term. To achieve this, you only need to set aside a limited amount in your savings account. The amount you need to save depends on your situation, including your monthly income, personal lifestyle, whether you already own a property or not, your short-term plans, and the composition of your family.

A good financial reserve can vary between the equivalent of three months and six months of salary, depending on your needs. If you don't yet own a home, keep in mind that it's now recommended to finance at least 10% of the purchase price yourself. This means your financial reserve will need to be more substantial. So, ask yourself: what amount should be available at all times on my account for me to feel financially comfortable?

*The expected final amount may differ from reality.