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 | INVESTING vs. SAVING |
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I want you to imagine all of your life savings broken down in 100 dollar bills and sitting in a bucket. $100,000 would be one thousand 100 dollar bills.
Then I want you to imagine, taking 1 of those $100 bills out of the bucket. Strike a match and light it on fire. Then take another out and light it on fire. The question I want you to ask yourself is how many of those $100 bills would you burn before you stopped?
The reason for this illustration is to determine what your risk tolerance is. If you answered I wouldn't burn any. Than you have no business being in the stock market. If you answered 50. Than your risk tolerance is $5,000 and you should have no more than $5,000 in the stock market.
You clearly have to understand money "invested" in the stock market is money that you are prepared to lose.
So what's the difference between investing and saving?
It's all about risk. When you are saving for retirement, you never put those important dollars at risk. That money is earmarked for retirement and must be there when you do finally retire. The current economic crash is the perfect example. Those retirement dollars should have never been invested (risked) in the stock market. They should have been in a safe place like a fixed annuity or bank CD.
Saving for retirement is for money you cannot afford to lose and you place those funds in a guaranteed financial instrument.
Investing money is for the hope of higher returns, but with the understanding you may lose all of the invested money.
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