There is no concrete definition of the difference, in fact we can consider the following for the purpose of explaining it both for products, services and instruments, as well as for the institutions that offer them or where they can be purchased:
Savings.- Amount of money, usually called capital, saved for later use. As it seeks to conserve capital, it is desired that the way it is stored (mattress, piggy bank, bank,…) has no risk.
Investment.- Amount of money that instead of just saving it, it is sought to increase it, that is, it is worth more than the original capital. In order to achieve this increase, the money is deposited with greater risk than when only saving.
There is no defined border between "saving" and "investment" so some elements must be taken to adjust to the particular needs of each person, among the elements that are easier to mention are:
• Security: it is directly related to the confidence or guarantee that savings or investment deposits will be returned. Currently, only operations with national savings bonds carried out by the National Savings Bank and Financial Services (Bansefi) have an unconditional payment guarantee from the Federal Government.
National commercial banks up to a certain amount through deposit insurance with the IPAB (Institute for the Protection of Bank Savings), ensure to return the initial deposits plus interest. In the rest of the financial institutions or instruments there will always be the possibility of not recovering the initial capital saved or invested.
Risk: is related to the occurrence of certain events that affect the ability to obtain the desired savings or investment, and sometimes the loss of these and / or part of our assets, the main risks are:
- Of the system (systemic or systematic):
They mean those events such as inflation, devaluation, the economic situation, failures in consumer protection, a revolution, etc., among other circumstances, in which the entire country is involved and that cannot be eliminated regardless of the institution where is invested in the financial system.
- From market:
It means those situations in the financial market (or market in which it is) that affect in a generalized way. For example, if the stock market goes down, the entire stock market is affected; if the interest rate increases, the financing market is affected; whether or not to have a deposit insurance or payment guarantee for the instruments traded, etc. This risk is reduced by diversifying investments in different markets or types of institutions.
- Credit (default or default):
It is when the person in charge stops fulfilling his obligations, in this case the payment of interest or the return of the capital saved or invested in the established time. This risk decreases with the diversification of the investment portfolio.
- Price / interest:
It means that the price or interest may go up or down against our expectations; For example, in the case of a loan it would be a risk that the interest rate will rise, while in a savings deposit the risk would be that the interest rate will fall, in the stock market for a holder of a paper the risk is that the acquired title falls in price, etc.
- On marketability / liquidity:
It is when we cannot exchange a security or financial instrument for its equivalent in money or another good. For example, that there are no buyers for the securities I have, that I cannot have the money invested in the term, that the differential between the purchase price and the sale price (spread) is high, etc.
- Of robbery:
In the case of keeping the savings at home, they can steal the cash from us; or in case of making deposits in a name other than the institution without obtaining the receipt, the situation may arise that they are not being credited to your account. It refers to improper physical handling of money.
Certainty / Uncertainty: it is the security of knowing at this moment the final value of a savings or investment deposit. It is very common to see this term associated with the concepts of Variable Income and Fixed Income; here volatility and time (term) must be taken into account.
- Equity:
The performance of the instrument through which it was saved or invested changes over time, so it is not possible to know from the beginning what the return will be or how much it will produce exactly until the deposit is withdrawn or the investment is completed in the established time.
- Fixed rent:
Although this name does not officially exist for investment instruments, for instruments traditionally classified under this heading, the yield is established for a specific period (term), so that from the beginning it is possible to know how much the saving or investment will produce at the end. the term. Except for fixed-rate debt instruments (CETEs, PRLVs, CEDEs), all the others vary in performance over time.
- Volatility:
Degree to which the price or interest of the instrument varies or fluctuates over time. It is closely related to risk, as it implies the probability that an event will occur that affects the final value of the savings deposit or investment.
- Term:
If we increase the time that a savings deposit or an investment is kept, depending on the type of instrument and its volatility, it is more difficult to know how much it will have at the end of the term or several terms, since the factors that affect prices and the rate interest keep changing. As a longer term elapses, it is more likely that more events, favorable or unfavorable, will occur.
Depending on the purpose and security you are looking for, you must choose the institution you require.
SECURITY is related to the interest that the saver or investor puts in:
• Verify the references of the institution where you deposit your savings or investment, to ensure that it is properly constituted and has adequate supervision.
• Read your contract and ask your questions to be sure of the costs and risks that exist.
• Read your account statement to verify that everything corresponds to the operations of products and services contracted with the institution and clarify or complain when they do not correspond to your operations.
• Request your vouchers of operations and services to have evidence with which to make your clarifications.
• Ask when you have doubts and before using the product or service to avoid situations such as: "I thought that.", "I thought.", "I didn't know.", "They didn't tell me"
Ignorance does not exempt you from responsibility, and it is not the means to recover your assets.
Another very important factor is to choose the type of institution or means of saving or investment that is suitable for the intended purpose. In this section we are only talking about saving and investing, so if your needs are different we suggest you consult the Index of Information on Financial Institutions to find the one that best suits your needs. If your interest is savings or investment, you can be helped by the following guide:
• Greater security = savings
• Less security = investment
Regarding supervision and / or regulation, there may be institutions:
• Safer because they are considered supervised and regulated.
• Less secure, those that may or may not be regulated, there is no direct surveillance by the authorities.
Most financial institutions are classified as investment, this means that:
- When choosing them, you should be more careful and the selection should be made after an investigation of their references, degree of supervision and regulatory framework.
- Verify the application of no deposit insurance or unconditional payment guarantee of the Federal Government.
- They cannot legally guarantee returns.
- There is a risk of losing part of your invested money or more.
However, do not be guided only by name, each of the institutions must be evaluated or investigated before operating with them, as their situation may vary or be misusing a denomination.
