Saving vs Investment


We have grown up hearing the two terminologies of saving vs investment around us and many a time these are used interchangeably.

Today I will attempt to explain these two terms and this will form the basis of my further contributions also.

Savings is when we are able to put aside some money from our regular day-to-day income and expense transactions.

That said, Savings can be put aside by placing in bank savings or current account, in the form of prize bonds, in a locker, or in a drawer in your house also. This amount in simple terms is not making more money for you. In fact, it is losing its worth every day as inflation is increasing. Most commonly known as “Mehengai”, inflation is the process where our money loses its buying power. Ten years ago we could buy 10 items for 1,000 rupees and today we can only buy 5 of those items for that much money.

That, in essence, is inflation whereby one needs more money to buy the same amount of items which we used to buy a few years ago at a lower amount.

Technically, our money is losing value every passing day. We need to look for ways and avenues to save our savings.

Step 1 is to cover the loss of worth and then to increase the amount to add more through to the basic saved amount. This is done by investing the saved amount. When we invest, we are trying to arrest the value loss and gain a return by putting the money to work. This is when we buy gold, invest in stocks, invest in mutual funds, buy property, convert to foreign currency or simply invest in National Savings schemes of the government through Saving Certificates.

Today the average rate of inflation (for FY21) is 8.9 percent which means 100 rupees is losing a value of 8.9 rupees every year.

How to go about investing?

When we invest our savings our target should be to gain a return over and above the inflation rate i.e. at least 8.9 %. Anything over 8.9 % would mean we cover the value loss and add profit. So now we have to look for different investment options. It is advisable to have our savings invested into different types of investment elements. These are also referred to as investment vehicles. We have always heard from our textbook days and our seniors the saying, “never put all your eggs in one basket”.

Similarly, in the context of investments, it is advisable to distribute the amount into
different baskets or drawers. It is because the economic environment is changing every day. Sometimes interest rates are high while other times they go down. Interest rate is determined through the Monetary Policy announcements which the State Bank of Pakistan makes on a bi-monthly basis. The last Monetary Policy announcement was made on July 27th, 2021 whereby the decision was to maintain the interest rate at 7 %.

This means that the banks will pay a profit of near around 5-6 % and the Treasury Bills which are the SBP short-term investment bills will give a yield within a range of 5-7 % per annum.


Other investment categories also change due to economic changes, sometimes property prices go high while at other times they take a dip, at times the project where we invest is put on hold or the specific areas where we invested in property have some sort of downtime. Anything may happen which can bring the value lower than we expect or invested. There are times when the stock market is in a bull mode and climbing high while at other times the stock market can go into a bear mode which means it is on a downward trend.

Some investors believe in building a portfolio of different stocks and invest for the long term whereas others believe in trading and making money in the short term by buying and selling on smaller day-to-day price changes.

Both investor types can benefit from the stock market but generally, in the long term, there is an opportunity to benefit from not only price changes but also dividend income. There are different company types that offer their shares on the stock exchange and many companies share their profit earnings with the shareholders by giving them a dividend, which is a portion of the profit earned by the companies. At the same time, there are many companies that do not give out dividends to investors.

saving vs investment
Some saving vs investment advice for you

To sum up, every type of investment has pros and cons and any investor who thinks of investing his / her savings must keep in mind the category of instrument and class of investment that they are choosing.

Their own financial situation must be kept in mind and their own ability to take risk. Some investors do not panic if the price of their share or property goes down because they study the economic cycle and the particular category of investment and at times believe that the share price or that property will re-gain the value over a certain time period.

While there are others who may panic if their invested share price drops 5 rupees and may end up either selling in panic or be upset at the brokerage firm for the loss in value. When one liquidates their investment amount out of the investment instrument, then they realize the gain or loss that they have accumulated. Till the time that the share or property is not sold, the gain or loss for that matter is not a realized gain or loss.

There may be some instances where the investment is a loss completely, for example, in any construction project that an investor has bought an apartment, goes into a stay order or demolish order, or comes into a dispute, the investors suffer a loss. Another example could be that any company where the investor has shares declares bankruptcy or goes into liquidation, the price of the share may drop drastically and not re-gain its value; hence it is important to not place all the eggs in one basket.

What are the Investment classes?

There are many investment options available. The separate options can be categorized as an asset class, asset category, or instrument and investment vehicle.
So for example in terms of the stock market, it is an asset class, with bonds and stocks being instruments and separate stock of company referred to as investment vehicle.

Mutual Funds, is another asset class, with the fixed-income funds, stock funds, capital protected funds, and govt securities funds, etc as separate instrument types or categories and a Stock Fund as the specific investment vehicle.

People must build investment or wealth portfolios over time with different investment instruments and classes. So if you have a portion of your total wealth in stocks, you should have multiple stocks of different companies and sectors, if you have bonds and certificates they should be of various tenures and entities, if a portion of your wealth is in property, you may diversify into the area or property type.