Learning the friendly way

Bitcoin, and many other cryptocurrency markets, have seen a phenomenal influx of funds recently, with the overall market cap reaching just shy of $3 trillion. This bullish market presents an advantageous set-up to make money. Trading, while profitable, introduces an array of issues that may be hard for newbies to overcome. 

If you are looking to make profits without the added risks then investing may be your best bet. But before you get into investing, there are some basic concepts you will need to grasp in order to make an informed decision. In this article, we're covering how to invest in Bitcoin and cryptocurrencies and what the difference is between investing and trading.  

Investing vs Trading 

To make a long story short, investing refers to long-term holdings while trading refers to short-term holdings, both are seeking profits within the market.

Generally speaking, investors are after greater returns over a longer period of time while traders seek to draw smaller, more frequent returns from rising and falling markets in a much shorter time frame. Trading thrives off of volatile markets, whereas investing seeks more stable options for longer-term rewards. Both provide the opportunity for profits, but each has benefits and flaws of its own. 

For newbies and those who have a more busy lifestyle, investing is the best option as it does not depend on your understanding and monitoring of market movements. Trading on the other hand is more of a career path, it requires considerably more time dedication, while also holding greater risk. As the saying goes, all traders should be investing but not all investors should be trading. 

It's important to note that both investing and trading have their own tax regulations and it is on the individual to find out and adhere to these laws. Bank on paying taxes on any returns made, as a general rule of thumb, but always research the guidance information relevant to your jurisdiction, i.e. tax paid on crypto returns will vary from the UK to Germany.

Bitcoin vs Altcoins 

Bitcoin, the first cryptocurrency to come into existence, boasts an impressive market cap and is the highest valued cryptocurrency to date. After it launched in 2009, many cryptocurrencies followed suit and were coined "alternative coins" which soon became shortened to altcoins. While these originally focused on payment-centred cryptocurrencies, today the term altcoin essentially refers to any cryptocurrency that isn't Bitcoin. 

When it comes to investing and Bitcoin vs altcoins, Bitcoin has proven to be the most valuable coin however there are plenty of small to medium cap markets that experience incredible growth. Consider Bitcoin's large price point to be a hindrance to short term investments, but more powerful in the long run. 

To put it into perspective, data shows that if you invested $50,000 into Bitcoin when it was trading around $60,000, you would have to wait for Bitcoin to hit $120,000 before you double your investment. However, if you invested that same $50,000 into an altcoin when it was worth $1, it would only have to reach $2 for you to double your money which is a lot more likely than Bitcoin doubling in the same period. However, this doesn't ring true to all altcoins and one must always do thorough research before investing. 

Altcoins come in all different shapes and sizes, some tackling industries from medical to real estate, all backed by the financial aspect of blockchain technology. Investing is about more than just profits, it is also about the project. Is it something you are interested in and could benefit from in the future? Is it something that could change the world for the better? Does it have real-world use cases? 

All of these are factors to consider when planning to invest. The potential behind the project is oftentimes what secures it as a viable investment option, promising great opportunity for adoption, stability, and growth. At the end of the day, investing in altcoins requires a considerable amount of research.

Where And How To Invest

The first thing you need to consider is which exchange and wallet you will be using. Long term investments mean you need to find a platform you can trust to store your funds in a longer-term time frame. This is the key to securing your investment, rather than coming back a year or two later to discover your funds are gone. 

Some people recommend companies offering hardware wallets to reinforce that investment "do not touch" mindset while others prefer web wallets that are more accessible. It's really up to you which platform you decide you go with, considering all the features and factors, your needs, and confirming your decision with your own research. Make sure to stay up to date on the platform you are storing your funds on to be alerted of any software upgrades, if any hacks occur or if a platform closure notice goes up. 

At Tap, we have integrated a hyper-secure wallet into our mobile app, allowing anyone, anywhere to securely store their funds. We are licensed and regulated by the Gibraltar Financial Services Commission and hold insurance of up to $100 million, ensuring the protection of your digital assets at all times. The mobile app also grants users access to a number of cryptocurrency markets, where you can freely buy, sell and manage your portfolio.

Final Thoughts 

Investment as a term isn't a difficult concept to catch onto, but finding the right investment is the important part. It is always recommended that you do your own research, and in-depth analysis at that, and don't be scared to diversify your assets. The investment world is yours for the taking, so get out there and start building a lucrative investment portfolio.

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FAQ

What is Bitcoin and how does it work?

Bitcoin is arguably this century's greatest innovation: a decentralised digital currency built on blockchain technology that allows for the transfer of value across the internet. This peer-to-peer digital cash system facilitates international payments at a fraction of the cost and time that fiat transactions of that nature take and are as simple as sending an email. Instead of being controlled and managed by banks or government entities, new coins are regularly entered into circulation through the process of mining. You can learn more about Bitcoin, blockchain transparency, and its lack of intermediaries from our guides.

Should I invest in Bitcoin?

As mentioned above, Bitcoin holds great market potential for both investors and traders. Since 2009, Bitcoin has performed well in terms of displaying strong ROIs, something most investors see as a benefit for future gains. However, investing in Bitcoin comes with its own risks that each individual should consider before entering the market. As a rule, never invest more than you are willing to lose.

Which are the three biggest cryptocurrencies?

Currently, based on market cap the three biggest cryptocurrencies are Bitcoin, Ethereum and Tether.

What are the alternatives to Bitcoin?

Alternatives to Bitcoin are referred to as altcoins. While there are thousands of cryptocurrencies on the market, not all are worth investing in. It's best to research each coin individually and weigh up the project before investing in it. Consider a cryptocurrency as a company, and purchasing coins as buying shares in the business.
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Disclaimer: This article is intended for communication purposes only, you should not consider any such information, opinions or other material as financial advice. The information herein does not constitute an offer to sell or the solicitation to purchase/invest in any crypto assets and is not to be taken as a recommendation that any particular investment or trading approach is appropriate for any specific person. There is a possibility of risk in investing in crypto assets and investors are exposed to fluctuations in the crypto asset market. This communication should be read in conjunction with Tap's Terms and Conditions.

When used to using the traditional banking system, learning how to pay and get paid in crypto might sound daunting. While there are a lot of factors to consider, it’s really a lot more simple than one might imagine.

Below we’re taking a look at the advantages of using digital currency to pay and get paid, and how to go about doing this safely and securely. 

The first proper use case of blockchain as we know it today was money. Bitcoin was designed as a decentralized digital means of transacting value at a faster and cheaper rate than traditional fiat currencies. Over a decade later and this still remains the case for digital assets. 

Cryptocurrencies like Bitcoin allow individuals to be paid quickly and simply regardless of where they are in the world. However, crypto operates in a very different way to traditional banking systems, which means you'll need to understand your way around it first. 

The Advantages of Using Crypto Payroll Services

The nature of cryptocurrencies allows crypto payroll services to offer several benefits for both employers and employees, particularly when the parties are located in different countries. The advantages are in part because there is no middleman concerned when using virtual currencies, which results in lower transaction fees, faster transaction speeds, and higher dependability. 

The Advantages of Digital Currencies for Businesses

Small enterprises face intense rivalry from bigger businesses in a global economy. Small companies, particularly in the tech space, may lack local expertise making foreign job markets more attractive. 

It’s often the case that those skills are available remotely, and often at a much better price, but accessing remote workers can be difficult, mostly due to the problems of sending money overseas. This can be a costly, time-consuming and unreliable process.

Some workers with the right skills simply won’t have access to the banking infrastructure or services that allow them to accept money from overseas employers.

This is where cryptocurrencies come in. You can use Bitcoin or other cryptocurrencies to access the international gig economy of digital nomads and highly-trained specialists.

Because cryptocurrency allows you to transfer funds at a significantly lower cost than traditional services, you won't have to worry about one person having to pay the costs of remittance, which can be costly when using conventional money transmission platforms. 

No matter how much money you’re sending, Bitcoin transaction fees are considerably lower than fiat currency, typically less than $1, allowing businesses to outsource small jobs or split a project into smaller parts. This can ensure that all parts of the project are given to a contractor who has the right skills and is a good fit for your firm. 

The Advantages of Digital Currency for Individuals

There are several benefits to accepting crypto payments, which might even outweigh the advantages for businesses (which, of course, makes implementing Bitcoin payroll procedures a lucrative option for organizations that need to hire remotely).

• First and foremost, getting paid in crypto is faster and more efficient than international fiat payments. Cutting out days, foreign exchange charges and hefty fees, crypto transactions are settled in a matter of minutes for a fraction of the cost. 
• Accepting crypto allows the individual to accept remote work, allowing for a greater scope of projects and companies. Working with companies with no geographical borders can present some incredible opportunities, more of which revolve around better income and more exciting projects.
• Working with cryptocurrency transactions allows for small amounts of money, whereas previously with fiat currency the charges would be too high to do so. This allows the individual to take on many small jobs across a range of businesses or interests.
• As some cryptocurrencies, like Bitcoin, provide a strong store of value, this allows users the chance to be more flexible with their funds, perhaps storing crypto assets away as savings (cryptocurrency holdings) which in time will ideally grow. Some crypto platforms, like Tap, even allow users to pay bills using their crypto balances.

The Legal Status Of Crypto Payments (and capital gains tax)

While Bitcoin transactions are completely secure, fast, and inexpensive, there is one element one will need to consider, and that is the legal status of cryptocurrencies in one’s jurisdiction.

Most nations have favorable regulations in place when it comes to receiving, sending and storing cryptocurrencies, however, it differs from country to country so it is important to check this prior to diving right in. 

On top of that, one must check the tax obligations relevant to your jurisdiction. Some countries treat crypto salaries as taxable income, while other countries treat it as capital gains tax. Check with a professional in your area should you need to.

How To Pay With Bitcoin

If you’re looking to pay employees in Bitcoin you will first need to get Bitcoin. You can acquire the cryptocurrency in one of three ways: mining, buying or receiving it as part of your business’ income. Depending on the services your company provides, it is most likely that you will need to buy Bitcoin before paying workers, which you can do conveniently and securely through Tap.

When you pay your workers with cryptocurrency payments, you will send them a dollar-equivalent amount of Bitcoin, relevant to the price of Bitcoin at the time of transfer. For example, if the price of Bitcoin is $50,000 and you owe them $2,500, you will need to send them 0.05 BTC.

Most exchanges will calculate this for you, showing the current dollar/crypto exchange rates. Tap also ensures that users receive the best price on the market at any given time through smart trade technology.

How To Get Paid In Cryptocurrency

For contractors who want to get paid in Bitcoin or other digital currencies, the approach is much the same only in reverse. However, you’ll need to consider what you want to do with the cryptocurrency you receive, and how you will store it.

Tap provides the perfect solution to both options as you can securely store your Bitcoin and other cryptocurrencies in the wallet provided, while also being able to use your crypto or fiat balance to pay fiat bank accounts and municipal bills and make other payments. 

Receiving and sending crypto is simple. All you need to do is open your Tap app, select the cryptocurrency you would like to receive and locate the relevant wallet address. Share this with your employer and the funds will be deposited directly into your account. Yes, it's really this easy.

In Conclusion

There are several advantages for businesses that pay their employees or freelancers in Bitcoin, as well as contractors who want to get paid in Bitcoin. These include fast, low-cost, and secure transactions regardless of where the parties are located, as well as access to a global market of employment and labor.

It's the perfect way to optimize operations, lower expenses, and find the best man for the job. 

Yield farming is a method to generate more crypto with your crypto holdings. The process involves you lending your digital assets to others by means of the power of computer programs known as smart contracts.

Cryptocurrency holders have the option of leaving their assets idle in a wallet or binding them into a smart contract to assist with liquidity. Yield farming allows you to benefit and gain rewards from your cryptocurrency without spending any more of it. Sounds quite easy, right?

Well, hold on because it isn't that straightforward and we are just getting started. 

Yield farmers employ highly advanced tactics in order to improve returns.

They constantly move their cryptocurrencies among a variety of lending markets in order to optimize their returns. After a quick Google search, you would wonder why there isn't more content surrounding strategies and why these yield farmers are so tight-lipped about the greatest yield farming procedures.

Well, the answer is quite simple: the more people are informed about a strategy, the less effective it becomes. Yield farming is the lawless territory of Decentralized Finance (DeFi), where farmers compete for the opportunity to grow the highest-yield crops. 

As of November 2021, there is $269 billion in crypto assets locked in DeFi, gaining an impressive almost 27% in value compared to the previous month of October.

The DeFi yield farming rise shows that the excitement in the crypto market has extended far beyond community- and culture-based meme tokens and planted itself in the centre of the hype. What exactly does it take to be a yield farmer?

What kinds of yields can you anticipate? Where do you start If you're considering becoming a yield farmer?  Here, we'll guide you through everything you need to know.

What is Yield Farming? 

Also referred to as liquidity farming, yield farming is a method for generating profits using your cryptocurrency holdings instead of leaving them idle in an account on a crypto website. In a nutshell, it involves bidding cryptocurrency assets into platforms that offer lending and borrowing services and earning a reward for it.

Yield farming is similar to bank loans or bonds in that you must pay back the money with interest when the loan is due. Yield farming works the same way, but this time, the banks are replaced in this scenario by crypto holders like yourself in a decentralized environment. Yield farming is a form of cryptocurrency investment in which "idle cryptocurrencies" that would have otherwise been held on an exchange or hot wallet are utilized to provide liquidity in DeFi protocols in exchange for a return. 

Yield farming is not possible without liquidity pools or liquidity farming. But, what is a liquidity pool? It's basically a smart contract that contains funds. Liquidity pools are working with users called liquidity providers (LP) that add funds to liquidity pools. Find more information about liquidity pools, liquidity providers, and the automated market maker model below.

How Does Yield Farming Work?

Liquidity pools (smart contracts filled with cash) are used by yield farming platforms to offer trustless methods for crypto investors to make passive revenue by loaning out their funds or crypto using smart contracts.

Similar to how people create bonds to pay off a house and then pay the bank interest for the loan, users can tap into a decentralized loan pool to pay for the bonds.

Yield farming is a type of investment that involves the use of a liquidity provider and a liquidity pool in order to run a DeFi market. 

• A liquidity provider is a person or company who puts money into a smart contract.
• The liquidity pool is a smart contract filled with cash. 

Liquidity providers (LPs), also known as market makers, are in charge of staking funds in liquidity pools enabling sellers and purchasers to transact conveniently by executing a buyer-seller agreement utilizing smart contracts. LPs earn a reward for providing liquidity to the pool. Yield farming is based on liquidity providers and liquidity pools, which are the foundations of yield farming. These work by staking or lending crypto assets on DeFi protocols to earn incentives, interest or additional cryptocurrency. It's similar to how venture capital firms invest in high-yield equities, which is the practice of investing in equities that offer better long term results. 

Yield farmers will frequently shuffle their money between diverse protocols in search of high yields. For this reason, DeFi platforms may also use other economic incentives to entice more capital onto their platform as higher liquidity tends to attract more liquidity. The method of distribution of the rewards will be determined by the specific implementation of the protocol. By yield farming law, the liquidity providers get compensated for the amount of liquidity they contribute to the pool.

How Are Yield Farming Returns Calculated?

Estimated yield returns are calculated on an annualized model. This estimates the returns that you could expect throughout a year. The primary difference between them is that annual percentage rates (APR) don't consider compound interest, while annual percentage yield (APY) does. Compounding is the process of reinvesting current profits to achieve greater results (i.e. returns).  Most calculation models are simply estimates. It is difficult to accurately calculate returns on yield farming because it is a dynamic market and the rewards can fluctuate rapidly leading to a drop in profitability. The market is quite volatile and risky for both borrowers and lenders.

Before Getting Started, Understand The Risks Of Yield Farming

Despite the obvious potential benefits, yield farming has its challenges. Yield farming isn't easy. The most successful yield farming techniques are quite complex, recommended only to advanced users or experts who have done their research.

Here are the different risks: 

Smart contract

Smart contracts are computerized agreements that automatically implement the terms of the agreement between parties and predefined rules. Smart contracts remove intermediaries, are less expensive to operate and are a safer way to conduct transactions. However, they are vulnerable to attack vectors and bugs in the code.

Liquidation risks 

DeFi platforms, like traditional finance platforms, use customer deposits to create liquidity in their markets. However, if the collateral's value falls below the loan's price, you would be liquidated. Collateral is subject to volatility, and debt positions are vulnerable to under-collateralization in market fluctuations.

If you borrow XX collateralized by YY a rise in the value of XX would force the loan to be liquidated since the collateral YY value would be inferior to the value of the XX loan.

DeFi Rug Pulls

In most cases, rug pulls are obvious exit scams that are intended to entice investors with a well-manufactured promising project in order to attract investors. 

A crypto rug pull happens when developers create a token paired with a valuable cryptocurrency. When funds flow into the project and the price rises, developers then seize as much liquidity they can get their hands on resulting in losses for the investors left in. 

Impermanent loss

Impermanent loss happens when a liquidity provider deposits their crypto into a liquidity pool and the price changes within a few days. The amount of money lost as a result of that change is what is called an impermanent loss. This situation is counter-intuitive yet crucial for liquidity providers to comprehend.

Exercise Caution When Getting Into Yield Farming

If you have no prior knowledge of the cryptocurrency world, entering into the yield farming production may be a hazardous endeavour. You might lose everything you've put into the project. Yield farming is a fast-paced and volatile industry. If you want to venture into yield farming, make sure you don't put more money in than you can afford, there's a reason why the United Kingdom has recently implemented serious crypto regulations.

What The Future Holds For Yield Farming

We hope that after reading this article you will have a much deeper understanding of yield farming and that it answered some of your burning questions.

In summary, yield farming uses investors' funds to create liquidity in the market in exchange for returns. It has significant potential for growth, but it's not without its faults.

What else might the decentralized financial revolution have in store for us? It's difficult to anticipate what future applications may emerge based on these present components. However, trustless liquidity protocols and other DeFi technologies are driving finance, cryptoeconomics, and computer science forward.

Certainly, DeFi money markets have the ability to contribute to the development of a more open and inclusive financial system that is accessible to everyone with an Internet connection. 

Level up your crypto trading with the right tools. Whether you’re brand new to the industry or a seasoned trader, you can never know enough about the industry, the crypto market or what to expect. Crypto trading is a unique and exciting endeavour, and we’re here to make sure you always have your best foot forward. 

It’s not always easy to know where to start

Being a beginner at anything in life is hard, and the crypto industry is no exception. It’s common for newbies to be inundated with content and it’s not easy to know what’s worth your attention and time and what isn’t. On top of that, there is also a lot of misinformation out there, with publications or platforms selling services through content directed to that purpose.

Through our Crypto Basics platform, you can learn the fundamentals of the crypto industry. We’ve curated the topics to ensure that you get a broad understanding while still covering topics that are relevant to your learning curve. Entering the crypto market should be fun and stimulating, so we’ve geared our Crypto Basics platform as well as all our content toward that.

Start Learning Right From Our Crypto Basics Learning Portal

Learn Now

Tap crypto basics 101

In our online learning portal, you will have access to plenty of blogs to assist you in gathering all the knowledge you need to know. We’ll start you off with an introduction to the three top cryptocurrencies, explaining what they are, how they came about, and what functions they offer. After the crash course on Bitcoin, Ethereum and Litecoin you’ll have a good idea of what cryptocurrencies are and how they differentiate themselves. You’ll then be introduced to altcoins, a common term used to refer to any cryptocurrency that isn’t Bitcoin.

What is Bitcoin?

What is Ethereum?

What is Litecoin?

What Are Altcoins?

From there you can gain an understanding of how cryptocurrency transactions work and what goes on behind the scenes to facilitate these digital transactions. We’ll also give you an introduction to how mining works, a term used to describe the process of new coins entering the system (also used to verify and process transactions). 

How Do Bitcoin And Altcoin Transactions Work?

What is Bitcoin Mining and How Does it Work?

How Long Will It Take To Mine All The Bitcoins?

In the explanation on Ethereum or across the industry in general, you will likely come across terms like “smart contracts”, “dapps” and “DeFi”. We’ve got you covered with simple explanations on each of these, delivering a comprehensive overview to help you navigate news pieces or forum discussions with confidence. 

What Are Smart Contracts?

What Are Dapps?

What is DeFi?

From there you can explore industry terms like “what is KYC?” as well as take a look at things like market caps and bull versus bear markets. These terms you will hear a lot of in the industry, and these blogs provide you with the terminology to breeze through. 

What is KYC?

What is Market Cap?

What is A Bull Or Bear Market?

Tap into your own potential

This is a good introduction to our Learning Portal, however, there is so much more on offer. As we constantly update the portal be sure to check in when you’re ready for your next dose of crypto knowledge, or better yet bookmark the link so that you constantly are in the know. We regularly update the section with new and insightful material, so be sure to check-in. You’re never too experienced to upgrade your crypto knowledge, so use Tap as your tool kit to further expand your crypto knowledge and navigate the markets with ease. 

In this article, we’re guiding you through the intricacies of the e-money licence: what it means, who needs one and of course, how it affects you, the consumer. This new wave of regulation has been put into place to not only safeguard the consumer but also to put measures in place to identify and stop fraudulent activity. 

What Is Electronic Money (E-money)?

Before we dive into the licencing requirements, let us first take a look at what electronic money is defined as. Essentially, e-money is a digital version of cash. It maintains a monetary value that can be used to make payments and various transactions, typically over the internet, or through a phone or card. 

E-money products are either software-based or hardware-based and are responsible for electronically storing the monetary value. Software-based products are used on computers and tablets and require an internet connection (like PayPal for example) while hardware-based products encompass cards that have a chip card and do not require an online connection (for example, Square). ‍

What Is An E-money Licence? 

The e-money licence is a regulatory licence that authorises an electronic money institution (EMI) to conduct business. EMIs represent the digitisation of financial services and are authorized to issue money as well as provide payment cards, e-wallets, and IBAN accounts. While banks may provide a similar service, they require an alternative licence as they are able to provide a greater range of services.

 In a nutshell, an EMI is considered as such if it engages in the issuing and redeeming of electronic money (e-money), cash withdrawal, deposit and payment services, remittance services, debit or credit transfers, payment initiation and execution services, and account information services. They may conduct these services only if they have the proper licensing.‍

How Does It Protect The Consumer?

While regulation and consumer protection are the driving force behind e-money licences, there are also several other reasons as to why the regulatory framework has been put into place. The licence is designed to provide businesses with the opportunity to gain access to the e-money market, to facilitate innovation in secure e-money services, and to build healthy competition in a secure market. 

E-money licences are obtained to safeguard a consumer’s funds should the EMI become insolvent. This operates in an entirely different manner to a banking licence. Under the proper regulation, EMI’s can choose to do either of the following options to safeguard consumer funds (funds provided by customers in exchange for the issuance of e-money):

• deposit the funds into a segregated client’s funds account with an authorised credit institution, or
• acquire insurance that will cover the risks associated with the client’s funds.

This ensures that the consumer is always protected against loss of funds, and will be compensated accordingly should the situation present itself. It is imperative that consumers only choose EMIs with the correct e-money licences. 

How Much Money Is Protected With The E-Money Licence? 

According to the FCA regulations, the EMI is responsible for establishing the appropriate organisational arrangements to ensure that the safeguarded funds are at all times protected. 

As mentioned above, this can be done by either storing the deposited customer funds in a separate account (different from the institution’s working capital and other funds) or by ensuring that they are covered by an appropriate insurance policy or comparable guarantee. 

While licenced banks work in conjunction with the Financial Services Compensation Scheme (FSCS) and only insure users up to ￡85,000, EMIs are required to protect 100% of the consumers’ funds. 

According to the licence, EMIs are required to safeguard all funds deposited on the platform and not just a portion as per the licence required by the banks. 

While EMIs take several other precautions to protect consumer funds, the e-money licence ensures that the most fundamental legal requirements are met, granting the company the right to legally operate.  

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Saving and investing are two key elements to managing one's personal wealth. In this article, we explore the benefits and downfalls of both these tools and give you a broader understanding of the topics.

What Does saving entail?

Saving money is an imperative step in building one's wealth and involves putting money away on a consistent basis, consistency is key. These funds are usually kept in an interest-bearing account, allowing the value to increase passively over the years. 

In the United Kingdom, there are different types of ISA (individual savings accounts) that offer tax-free savings options.

In order to save, one must be spending less than they're earning. 

What does investing entail?

Investing involves buying an asset with the intention for it to accumulate in value. This typically comes after saving, although the earlier the better. People invest in the likes of stocks, cryptocurrencies, property and even themselves (education, capital for a business) in the hopes of generating returns. 

What's the difference between saving and investing?

The biggest difference between the two is the varying returns you can earn. Saving money in a bank account typically provides returns of 0.5 - 0.8%, while the return potential on cryptocurrencies and stock is much greater.

The other main difference between saving and investing is the risk. So, while earning higher returns on investments might sound much more appealing, the risk is usually greater. Savings accounts carry minimal risk and are usually insured while investment portfolios will rise and fall with the market and are only insured if the investment company fails. Investors should balance the options and establish which risk level they are comfortable with.

In light of these risks, savings are recommended for short term goals while investments cater better to long term financial objectives. This is because long term investments will ride out the ebb and flow of markets and recover even if there is a drop over a certain period. Savings on the other hand are more easily accessible and won't be "interrupted" if the funds are used for an emergency. 

However, savings are also susceptible to inflation as the interest rates are seldom higher than the inflation rates. For example, if your bank is offering a 0.6% interest on your savings account and inflation rose 2%, your savings would have actually decreased in value. Investing typically beats inflation.

The similarities between savings and investing

As both tools are excellent at building and creating more wealth, there are bound to be similarities between the two.

The main similarity between the two is that both options are best started now, whether you're in them for the long or short term benefits. This is due to compounding. Compounding is the process where the interest you earn on an investment or savings account is continuously reinvested, increasing the base sum each period. 

For example, if you put $1,000 into a compounding savings account and earned 2% interest each year. The next year you will be earning 2% interest on the lump sum plus the interest earned, $1,020. The next year you would earn $1,020.40 ($1,020 interest earned, $20.40). This doesn't sound like too much, but over a ten-year period, you would have amassed $219.20 without having done a thing. 

Before you get started

Before getting started on either of these options, ensure that you have a positive cash flow and are debt-free. You'll also need to establish what your risk tolerance is, your short term and long term financial requirements, and when you would like to access the money.

If you don't have one already, you'll want to establish an Emergency Fund that can cover your living expenses for 3 - 6 months. Should you lose your job you can then fall back on this loan and not have to rely on credit cards with high-interest rates. 

Experts also recommend setting up a retirement fund, with automated monthly contributions. Once your emergency and retirement funds are established, you can consider a short term savings account or long term investment, or both. 

Pros and cons of saving and investing

Below we highlight the pros and cons of both tools:

Saving

Pro: Money is accessible and can easily be withdrawn.

Pro: Exempt from market volatility.

Con: Cannot leverage on market gains (potentially missing out on large compound interest benefits).

Con: Susceptible to inflation.

Investing

Pro: Longer time frames allow for favourable compounding interest.

Pro: Could tap into large market gains. 

Con: Exposed to more risk as markets are susceptible to drops.

Con: May incur a penalty if the money is withdrawn too soon. 

The bottom line

Both savings and investment options carry their own set of risks and rewards and it's ultimately best for you to speak to a financial adviser who is able to provide you with calculated professional advice. 

Disclaimer: This article is intended for communication purposes only, you should not consider any such information, opinions or other material as financial advice. The information herein does not constitute an offer to sell or the solicitation to purchase/invest in any assets and is not to be taken as a recommendation that any particular investment or trading approach is appropriate for any specific person. There is a possibility of risk in investing as investors are exposed to fluctuations in all markets. This communication should be read in conjunction with Tap's Terms and Conditions.

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