Saving vs Investing

So let's start from the very beginning. What is the difference between saving and investing?

Saving is straightforward, and something that most of us do. Saving is essentially putting away an amount of money into a safe product or place, which can also be easily accessible. This could be into a savings account, or various other deposit accounts offered by a bank.

A safe product or place doesn't mean that it is physically safe to keep your money there (although it can be), but rather, that your money is preserved. What this means is that if you deposit R100 into a savings account, that R100 (called principal) will always be there, plus any interest on the amount. Interest is the 'reward' that the bank gives you for keeping your money with them.

Currently, South Africa does not have depositor insurance. This means that if a bank ever happened to fail (like African Bank did in 2014), there is no guarantee that people will get the money they deposited in their banks back. However, this should not be a worry, as the possibility of the large banks in South Africa failing is rare, so your money is pretty safe there.

Because of the low risk of this saving, the interest that you earn on the principal is generally very low as well. This is the basic rule of savings and investing: usually the lower the risk, the lower the reward.

Many people will then look to something else to help their money grow, and this is where investing comes in. Investing means that you put your money into riskier products, where you have the possibility of earning more returns, but also have the possibility of losing your principal. There is no guarantee that you will get any returns. Probably the most common form of investing is in shares -- you use your money to buy a 'share' of a company, say Woolies, and if the share does well, you can earn more money than you invested, but if it does poorly, you may lose more money than you invested.