Question: Wilfred, how do you decide whether to invest or to save?
Answer:
Savings and investments are the same except that they are like the opposite sides of the same coin.
They are the same because the purpose of saving and investing is to accumulate money so that you will be able to spend it on something else later. For example, a down payment or children’s education or retirement. The purpose is to set aside money to be spent at a later date.
Yet on the other hand, they are not quite the same. Generally when we talk about savings, we are referring to something that is safe, able to liquidate fast without any capital loss.
On the other hand, investment is for longer term because you take risk.
The methods of how you go about accumulating wealth for both are not the same too.
However, many people save and invest without a purpose. We need to be careful of purposeless approach to wealth accumulation because potentially it be can be hoarding.
There were news reporting individuals who hoard many things at home to the extend that their home becomes like a junk yard. There is no doubt that hoarding – be it physical or financial - can be potentially be a mental illness!
This reminds me of a true story. Many years ago, I had a client who came to me for financial planning. His net worth was more than $2 million without counting his property. But the issue was that he stayed in a 3 room HDB flat. There is nothing wrong in staying in a 3-room flat except that flat was small for family of 4. His wife was a homemaker and he had two children. Despite being a high networth, his standard of living was too low. He probably showed signs of hoarding and placed too much into wealth accumulation while ignoring the realities around him.
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