Macro Minute: Week of August 4, 2025
Today I am going to do something a little bit different. I began thinking, what are the most asked investment questions? Being an old millennial, I went to Google. Google AI’s Gemini came up with these three questions, and I am going to answer them.
What’s the difference between saving and investing?
To answer this, I will first start from the aspect of the use of each and then touch on how the lines can blur between them. To begin, savings are typically tied to a specific future need. They typically are shorter term or at least for a specified time. A great example of this is saving for a big purchase like a vacation or vehicle. Usually in these cases the dollar amount is known along with the time of the spend. Also, because the dollar amount is typically set, the savings is held in some form of cash or cash-like instrument. Typically, we invest for things that are farther into the future or when we have more cashflow than needs. With investing, you typically buy assets that are expected to appreciate over time more than just holding cash. These investments are expected to deliver an amount of return, but the value will fluctuate. When savings and investing converge is when you are thinking about retirement. We know that at some point in the future we will want to use our investments as income when we retire. At that point you will turn part of your investments into savings to support your expenses.
Why should someone invest?
The current financial system we live in creates inflation. I have written about this phenomenon before, and you can read that here if you’d like https://longviewfa.com/macrominute_10-09-2023/. Put simply, we invest to protect ourselves from the ravages of inflation. If we were to only hold cash and not invest, then the value of our cash would buy less and less over time. This is why we both invest and strive to earn more money as time goes by.
When should someone start investing?
This is the easiest to answer. You should start as early as possible. The miracle of compounding has the opportunity to work best given the largest amount of time. Let’s assume two identical people invest $500 a month for their lives. Let’s also assume that they both achieve 5% a year on their investments and live to 90. The only difference is that person A starts investing at age 25 and person B starts at age 35. How much of a difference can starting ten years earlier make? Well investor A will have $1,746,421.87 while investor B will have $1,013,218.65. 72% more by starting at 25 instead of 35. That is how compounding works. Given enough time, it can make huge differences. Sacrificing a bit early can make it where you don’t have to sacrifice a lot later. In a nutshell, the answer is now. Now is always the time to invest.
DISCLOSURES:
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