Saving and investing are not the same. They have two completely different purposes.
Savings are short-term. Their purpose is to finance clear short-term expenses and goals. These expenses and goals represent the liquidity you need to live. Everyone should have enough money in their savings accounts to pay their bills, taxes, the third pillar, vacation, and an emergency fund for unexpected expenses, such as a job loss, sickness, dentist, car, or any kind of maintenance. How much should be in this emergency fund depends on how much you own.
The more you own, the higher the unexpected maintenance costs may be. For example, owning a house will require a bigger emergency fund than renting an apartment. With a house, you may need a new heating system or roof. Your emergency fund should be at least 3 months' income, but if you own a house, 9 months may be more appropriate. Saving is easy, everybody can save money. It’s just a matter of budgeting. Savings are intended and budgeted and not what is left over.
Investments are different, they are made to achieve bigger goals like buying a house, starting a company, or building wealth and saving for retirement. Investments require long-term commitments and market research. Investments are made with at least a 5 to 10-year time horizon.
This longer commitment is important because time works for investors. The longer an investor's investment horizon, the smaller the risk with stock investments. Anyone who wants to hold shares for just 1 year must expect a loss because every fourth year, the stock market goes down. Those with an investment horizon of 10 years only must expect a loss every 20th time, and with an investment horizon of 15 years only every 500th time. The probability of a loss with a 15-year time horizon is 0.2%.
It is important for everybody to have savings. If you have more money than you need to live, pay your taxes and third pillar, and go on vacation with an additional emergency fund, you should think about investing and do it wisely and with a long-term horizon and commitment.
On yeekatee, you find the right information for good choices on investing. Done wisely and carefully helps not only to build wealth but to participate in your economy in your personal way.
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Written by Therese Faessler, Founder of invested.ch and SFTA Head of Financial Literacy