Savings and Investments – How Are They Different?

Savings and Investments are absolutely important for every citizen. They can be used in various ways to meet expenses but it must be understood that there are some major differences between the two.

Economists and bankers always advise that ‘savings’ as a habit has to be learned at a very young age; this essentially teaches the value of money in a small way and helps to understand macroeconomics at a later stage. Saving money and investing money are two completely different concepts altogether; savings is part of the money left over after monthly or annual bills and expenses have been met or keeping aside a certain portion of the income. Savings are generally used to deal with unexpected expenditure like an illness or unforeseen accident, home repairs, educational expenses etc. It can be a pre-fixed percentage of total earnings like 10 percent or 20 percent. In other words, savings is hard cash ‘saved’ from expenditure by being cautious or avoiding an expenditure altogether. Investments on the other hand pertain to that certain sum of money put aside in financial products or systems to generate returns and increase incomes.

The three prime factors where savings and investments differ are:

• Time – savings usually cater to short-term needs unlike investments that need longer durations of time from a few months to a few years to generate returns.

• Liquidity – savings are the most liquid of assets as they are accessible at any time. Investments however cannot be liquidated immediately and may take from a few days or a few weeks to attain liquid status.

• Risk and reward – the risk factor with regard to savings is almost negligible but do not see much return as compared to investments, which may be fraught with risks. But investments that are done wisely – for e.g. in gold, mutual funds, shares and stocks etc. – can help fetch manifold returns over a period of time.

That said, we find that many a time when savings is easily accessible, the tendency is to dip into it and take money when the need arises – a celebration dinner or graduation party, automobile repairs, a sudden trip etc. Financial planners are of the view that those who set aside a portion of their monthly income aside before chalking out expenses are better able to meet unforeseen expenses because they are able to build savings and reduce debts. To help prevent depletion of savings funds, the best strategy is to set up an automatic transfer to a savings or investment account that has a lock-in period which makes it rather difficult to liquidate the money even if a need arises.

How to Collect and Invest In One Dollar Bills Using Serial Numbers

A one dollar bill may not seem like a lot of money, but some are rare and can become part of an investment. The key to knowing if a dollar bill is worth more than face value is to examine the serial number. Serial numbers are a combination of a letter, eight numbers and another letter at the end. You can find them easily because they are printed in green and are located twice on each bill. One is close to the bottom left of George Washington’s portrait and the other is located at the top right of his portrait. Combinations of serial numbers are keys to determining the rarity and investment value of a bill.

The first letter runs from “A” to “L”. These 12 letters are codes for the cities where they were printed. The last letter indicates the number of times that the Bureau of Engraving and Printing used the sequence of serial numbers. So, “A” means that the serial number has run only one time. “B” indicates a second time and “C” is the third. The number of letters goes through the 26-letter alphabet.

Between the letters are eight numbers representing how many one dollar bills were printed in one year. The first one printed will be “00000001″. The last is “32000000″. The lower or higher the numbers, the more they’re worth as investments. For example, a bill with a low number like 00000095, or one with a high number 32000022 can fetch between $25 to $100.

Also, a specific combination of numbers can add value. If you have only two numbers in the set, like “2″ and “4″, such as 22424442. This number is worth a little more than face value. But, if you have a repeating pattern, like, 24242424, or 24224224, your investment just increased by about $1,000. This special combo is called a “binary bill.”

You might also get a set using three numbers, such as “2″, “4″, and “7″, you can have them in no special order, such as:27244727, or 59577975 Of course, if they follow a repeating order, they are worth more. You must know that a two number combination will be more valuable than the three number combination. These are called “trinary bills,” which could only fetch $3 or $5.

Another type is called a “ladder,” which is a direct count from 1 to 8: 12345678 or, backwards: 87654321.

A “radar” bill reads the same numbers backwards and forwards, like a mirror: 14622641. A “super radar” bill only includes two numbers, with the same one only at the beginning and end: 59999995. Radars can fetch about $25, while super radars might be worth about $70.

Two or more separate bills with consecutive serial numbers, like 25348793 and 25348794, are two bills printed one after the other.

“Doubles” occur when you have two of the same numbers: 33774499. A “double quad” is two sets of four of the same number: 33335555. Even a bill with one number repeated eight times: 44444444 might bring $500.

You can also find a “star note.” If you see a star at the end of a serial number, it means that it’s a replacement bill for one with the same serial number that was damaged.

7 Reasons Why You Should Invest in a Fixed Deposit

If you’re thinking about investing in a fixed deposit, then you’re already on your way to securing your financial future. This is not just a smart move, but also a move where you can find a lot of returns for you.

Investing through a fixed deposit scheme have become widely popular, since they are one of the most stable methods of investing, and you’re assured of getting a return. Once you start looking into FDs, check the interest rate that your bank is offering you and see how much you stand to gain at the end of the tenure period.

Let’s take a look at why fixed deposits are one of the best methods of investment.

They’re One of The Safest Methods of Investing

If you’re thinking of investing in something like the stock market, then you know that there’s a considerable level of risk that you have to take into factor. You could stand to gain a lot, or you could lose everything that you sank in.

But that’s not the case with fixed deposits. They’re known to be one of the safest methods of investing. You can choose FD investment schemes that will always expect a return.

They’re Flexible to Your Needs

By flexible, I mean that they’re essentially tailored to have maturity periods that are suited to your convenience. You can choose to lock in a sum of money for as little or as long as you want. Keep in mind though, that you won’t be able to access the money during that period, since it is in the maturation period. Keep this in mind when you’re thinking of opening a FD account.

You can also tailor your periods so that you can qualify for fixed deposit tax benefits, saving you from having to pay taxes on your investment.

They Can be Compounded if you don’t Need your Money

After the end of the maturity period, if you don’t need the money from the fixed deposit, you can reinvest it again and gain additional interest from the total amount that you got. This compounded interest can add up to a lot of gains over time, so if you’re someone that can trust themselves to have a lot of money tied up with the bank for an extended period of time, then this is definitely something for you to consider.

Relatively Safe For Senior Citizens

If you’re a senior citizen, you’re well aware of how precious your money is. You don’t have a stable salary anymore, so you’ll have to think about managing every little bit. For senior citizens, fixed deposits can be a good way to get some extra cash through the money they already have. This means that you won’t have to spend out of your life savings to ensure that you can get through the remainder of the month.

You’ll also find that banks will offer senior citizens a higher interest rate on FD than regular customers, so you can take advantage of that as well.

You Can Save on Taxes

While in other methods of investments, you can and will be regularly taxed, fixed deposits are only taxable once they break the exemption limit. This means, if you can plan your deposits properly, tax saving methods can be all the more beneficial for you, keeping money in your hands without having to pay taxes unnecessarily.

They’re Easy

Other investment routes can be difficult, since you’ll have to do days of research and walk through complicated procedures to get started. That isn’t the case with fixed deposits. They’re relatively easy to open and easier still to maintain.

They Can be a Regular Source of Income

If you have a number of fixed deposits in a number of banks, they can also be a sizable source of income for you, meaning that you can put your other money into other investments, keeping your finances secure.

This means that you won’t have to live from paycheck to paycheck.

Fixed deposits have been around for a long time, and there’s a reason for that. If you’re looking to start investing in these, then you should check out the Fixed Deposit interest rate that your bank offers and see if there’s anyone else that can compete.

Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Gurgaon, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.

Portfolio Diversity for Family Offices

Regardless of the approach taken, today’s family office needs to manage risk by creating diversity within their portfolio which would otherwise be provided by a third party manager.

One of the questions we are asked by investors relates to the risk in purchasing an interest in or financing an exciting early stage or start up venture. Minimizing risk is tricky if you choose to invest anything. Most family offices and wealthy individuals know the relationship between greater risks and higher returns. Diversification is one method that can balance risk in a portfolio.

Alternative investment diversification can be created through a number of methods. Some investors attempt this themselves but increasingly seek the services of a professional independent advisor to assist them.

Diversification is the division of your investment portfolio among varied assets. It can assist risk reduction because different investments rise, plateau or reduce independently. In a well structured portfolio of direct investments, diversified asset combinations typically cancel out each others fluctuation, therefore reducing risk.

Family Offices can diversify within a specific asset category such as medical technology or manufacturing. To do this you could acquire interests in companies in different geographic locations. Or you can diversify your portfolio across different asset categories (eCommerce, medical technology, defense technology or automotive development for example). Or you can diversify in ventures that are spread out in timing on the development “curve”.

Clearly for your diversification strategy to be effective, improved performance while reducing risks is ideal. Typically we view two broad risk types when analysing alternative investments. These are known as unsystematic risk and systematic risk. Part of our job is to assist our inner circle clients identify and subsequently reduce these risks.

Unsystematic risk is sometimes referred to as diversifiable risk and is specific to a particular investment. It may be that an opportunity shows weakness in one or more particular areas after we have run our due diligence. Our obvious goal is to mitigate those factors and provide a sensible balance of risk versus reward profile. We cannot always remove the risk, we can however reduce it and spread the likelihood of such risks at any one time or alter the price of the risk on your behalf.

Systematic risk effects everyone at the same time and accounts for most risk most of the time. Examples such as 9/11, the collapse of the financial markets in 2008 and impending war in the Middle East affected economies, not just a business sector or industry. Investors cannot eliminate such risk as it is beyond their control, as such it is un-diversifiable risk.

‘Diversification across ‘asset classes’ or different investment sectors and markets helps reduce your risk by cushioning market tremors and removing most unsystematic risk from your portfolio. You should get rewarded appropriately for taking market risk. We can reduce portfolio risk by excluding un-systematic risk that investors are not rewarded for.

Diversification averages out asset returns within your alternative investment portfolio, it smooths potential ups and downs and it provides good protection against business risk, financial risk and volatility.

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