When it comes to saving and investing, you may have many questions. For example, what’s the best way to save? Or, if I save some money, should I invest it? Also, is there a difference between saving and investing? Understanding the difference between saving and investing, and the advantages of each can help you decide how best to achieve your financial goals. Money is hard-earned, and you may be wondering how to maximize your capital appreciation. In this article, you’ll learn the difference between saving and investing and other important considerations to keep in mind when evaluating which option is best for you.
What is savings?
Saving is setting aside money for future goals, such as buying a car or putting down a down payment on a home. Savings are also your emergency reserves to help you better cope with emergencies. Saving is an important and impactful behavior that can start at any age. However, saving regularly and discipline often requires keeping a close eye on expenses, especially non-essential expenses, so you have money to save.
One way to save is through a savings account. The TD Pre-Authorized Transfer Service makes saving a breeze by automatically transferring a certain amount of funds from a checking account to a savings account. By developing smarter spending habits and setting aside a certain amount of money to save regularly, you might be surprised how quickly you can save.
Once you’ve successfully developed the habit of saving, the question becomes: what to do with the savings? Is it time to keep the money in a savings account, or start thinking about investing?
Check out our tips on how to start saving to get started.
What is an investment?
Investing is the process of purchasing an investment product (usually with money that you have accumulated or saved regularly) in the hope that the money will increase in value over time. The foundation of building wealth is not just saving, but getting the money to work so that it can increase in value faster than it can in a savings account. Investing accelerates the value of your savings, which can help you achieve your goals more easily than simply saving. In many cases, investment appreciation is a key factor in achieving financial goals.
If you want to achieve capital appreciation, investing may be the option for you. Savings for retirement or children’s education may be a better investment, as achieving these long-term goals may require long-term holdings to increase returns. You can buy investment products, such as TFSAs or RRSPs, through non-registered accounts or registered plans. Registered plans are often the smarter way to invest because these types of plans offer special tax benefits (for eligible individuals) that may increase funds faster than non-registered accounts. Some of the more common investments include stocks, bonds, GICs, and mutual funds.
What are the benefits of investing?
One of the benefits of investing is the potential for higher long-term returns. Other potential benefits and reasons to invest include:
- keep up with inflation Speed: Due to inflation, the purchasing power of equivalent funds tends to decrease in the future. So unless your savings can grow faster than inflation, your savings will be worthless in the future than they are now. Example: If inflation is 2 % and the marginal tax rate is 35%, the ROI would need to be 3.08% to outperform inflation1. You might have a hard time finding a savings account with interest rates that beat inflation, especially in a low-interest-rate environment. If you invest, your investment product has a higher probability of keeping pace with inflation, depending on the investment product chosen.
- Income generation: Adding value may not be your main goal. For those who have retired or are about to retire, generating more recurring income may be a priority. Investment products (such as a portfolio of stocks and bonds, GICs, or mutual funds) can seek to provide income levels that beat inflation.
- Tailored: Investment advice can be tailored to your personal goals and aligned with your investment objectives, time horizon, and risk tolerance. By working with a TD Financial Advisor, you can get personalized advice on the right investment products to help meet your needs now and in the future as your goals or financial situation change.
- Getting started is easy and convenient: you can start investing immediately without waiting. If you already have sufficient capital, you can make a one-time investment, or you can make small investments automatically when you are just starting.
- Auto-Invest: Set up regular auto-contributions so you don’t have to hesitate about when to invest. In situations where investment values fluctuate, automatic/regular investing helps balance the value of purchased investment products over time, and in the long run, increases the investment’s appreciation potential, reduces risk, and eliminates Choose the ‘timing to invest’ annoyance to maximize your return.
- Preferential tax treatment: In a non-registered account, any appreciation in the form of capital gains and dividend income is generally taxed at a lower rate than interest income. Using your savings to invest in products that generate capital gains and dividends, such as stocks and mutual funds, is taxed at a lower rate than leaving your savings in a savings account (which generates interest income).
What is the difference between saving and investing?
The key difference is that investing can help you achieve your long-term financial goals, such as living your desired retirement or financing your children’s post-secondary education, by providing a faster rate of capital appreciation than pure savings. Saving, on the other hand, refers to the act of keeping money and saving it. Investing can help accelerate your savings to achieve your financial goals.
To get started, browse our savings and investment products.
What types of investment products do we offer?
TD offers a wide range of investment options to choose from. These investment solutions can help you achieve your investment goals and live the life you want, not just to meet your needs. Investment products include GICs and mutual funds, which can also be held in registered plans offered by TD.
- GIC: A Guaranteed Investment Certificate (GIC) is a type of savings that provides a guaranteed return on investment, which makes it a safe way to invest.
- Mutual Fund: A mutual fund is an investment product that pools the funds of multiple individual investors and uses it to purchase securities such as bonds, stocks, or other investable assets selected and managed by a fund manager. Every mutual fund has an investment objective, and each fund seeks to achieve this objective for the benefit of investors. You invest in mutual funds by purchasing units of the fund. The value of mutual funds tends to fluctuate, and there is no guarantee that you will receive a return on your investment or that your principal will not be lost. It is recommended that you review the fund’s product profile or prospectus before investing in a mutual fund.
Our registration program includes:
- TFSA: A Tax-Free Savings Account (TFSA) is a registered plan in which you save or invest up to a personal contribution limit and your income is not taxable.
- RRSP: A Registered Retirement Savings Plan (RRSP) is a registered plan that allows you to save for retirement while deferring your taxes.
- Spouse RRSP: A spousal RRSP is a registered plan that allows you to contribute to your spouse’s or common-law partner’s RRSP while having tax deferrals.
- RESP: A Registered Education Savings Plan (RESP) is a registered plan that helps you save for your children’s post-secondary education. RESPs can be a good option as the government offers savings incentives such as stipends.
- RDSP: The Registered Disability Savings Plan (RDSP) is a special program for Canadians with disabilities and their families to help save for long-term financial needs, such as future medical expenses.
- RRIF: A Registered Retirement Income Fund (RRIF) is a retirement income plan that gives you the flexibility to decide the amount of income you withdraw from your retirement savings each year. The minimum annual amount is set according to a predetermined schedule by the federal government. Typically, RRSP owners carry over balances from these plans into an RRIF.
A TD financial advisor can help you evaluate which registered plans and/or accounts are right for you.