Very often I come across cases in which the client is unable to distinguish between savings and investments. The confusion is usually related to the unfamiliarity with the different asset classes.
For savings, it is usually refer to putting money in asset class which
(1) Will not have any chance of capital lost;
(2) Whose value can be determine easily;
(3) No contractual commitment; and
(4) Highly liquid
Typically such instruments are known as cash or cash-equivalent. Saving accounts and fixed deposits will come under this category. Thus, when a person says he wants to save, he is actually referring to putting money into the saving account or opening a fixed deposit.
For investments, it will have some or all of the following properties:
(1) Chances (probability) of capital lost;
(2) Whose value may not be so easily determined until it is liquidiated;
(3) Come with either contractual commitment or an expectation to remain committed over a long period of time; and
(4) May not be easily liquidated.
Investment instruments include fixed income and equities. To make life more confusing, there are secondary asset classes being created which invests in fixed income and equities. These are: unit trusts, ETFs, single premium endowment, regular premium endowment, ILPs, etc.
Like this article? Subscribe to my newsletter below for more.
What do you think? Leave a comment.