The Difference Between Cash Savings & Stock Market Investing
Every individual needs to hold enough cash to cover living expenses. But what do you do with the rest of your income?
There are many ways to store and grow your money; each comes with a certain level of risk and potential returns.
You can most commonly keep your money as cash savings in your savings account or allow it to grow in lucrative investments, like stocks.
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Stock Market Investing vs Cash Savings
Let us look at different aspects concerning stock market investing and cash savings to help individuals to decide how to get the best from their savings.
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Purpose
Generally, cash savings are used to build an emergency fund to face unforeseen financial crisis.
Stock market investing involves making investments strategically with an expectation of profits on the investment over time.
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Options for Holding Funds
You can open a savings account to hold your cash savings with the bank. If you are considering stock market investing, you can consider several financial assets to invest your money using a demat account.
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Risk Involved
Cash savings in a savings account is known for safety and reliability, making it an excellent option for parking cash.
On the other hand, stock market investing involves risk depending on the choice of investment.
For example, direct stock investing involves higher risk as compared to mutual funds.
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Types of Returns
A savings account is an interest-bearing deposit account with a bank. These accounts typically pay a low-interest rate on your cash savings.
On the other hand, stock market investing is known for higher returns with prudent decisions on choosing the right investments. Your investment will offer returns based on the market conditions.
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Time Horizon
Cash savings in a saving account are good if you want to hold cash for short-term needs.
Generally, individuals consider stock market investing if they have spare funds that can be invested long-term.
Demat account maintenance charges are affordable with discount brokers to hold your investments as long as you want.
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What to Know to Start Stock Market Investing?
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Understand Your Investment Goals
Take your investment goals into account before you start investing. Every individual is unique, and so are their goals.
Before investing in the stock market, one should determine their financial goals and how long they will take to complete.
Experts suggest choosing a long-term investment as they can offer higher returns.
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Analyse Your Risk Appetite
While you are considering stock market investments, keep in mind the risk associated with them.
Gauge your risk appetite first. Stock prices fluctuate every moment, and you cannot hope for the best returns only.
After understanding your risk appetite, you will be able to make the right investment decisions.
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Scope of Diversification
Diversification is the first rule to be followed in stock market investing. A well-diversified investment portfolio helps to reduce the risk of huge losses.
If some of your investments are not performing well, other investments may help your portfolio stay afloat.
You can diversify your portfolio across investments, industries, and even geographies.
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Stay Away From Your Emotions
Stock market investing does not have a place for emotions. You cannot pick a stock just because you like the company.
You can hold stock even after reaching the target price. This greed may turn your profits into losses.
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Do Your Research
Research is crucial for stock market investing. Investors need to do research well before investing any amount of money.
Understand the market basics first. Learn the financial terms associated with stock investing.
Thus, you can differentiate cash savings and stock market investing by considering various aspects, including financial goals, risks associated, return potential, time horizon, etc.
This differentiation will help you to choose a suitable way to hold your money.