Investments
Wondering whether you should save or invest? The answer depends on your goals and your financial situation.
Saving is putting money aside, bit by bit. You usually save up to pay for something specific, like a holiday, a deposit on a home, or to cover any emergencies that might crop up, like a broken boiler. Saving usually means putting your money into cash products, such as a savings account in a bank or building society.
Investing is taking some of your money and trying to make it grow by buying things you think will increase in value. For example, you might invest in stocks, property, or shares in a fund.
Before you make any commitment to invest or save, we normally recommend that you consider the following as a priority.
Make sure your family would be able to cope financially if you died:
Before you even consider saving or investing, we recommend that you review your protection benefits to ensure that you and your loved ones are protected in the event of death, ill health or redundancy, if relevant.
Clearing any debts as a priority:
Depending on the type of debt you have, paying them off whether by a lump sum or a regular repayment may well save you more money in the short term than investing.
Having sufficient readily available funds to cover any emergencies:
The general rule is to have a minimum of three months’ worth of living expenses saved up in an instant access savings account. This should include rent, food, school fees and any other essential outgoings. Your emergency fund means you have some financial security if something goes wrong.
Beyond this you will need to consider your goals and the timescale within which you wish to achieve them.
Short-term goals: Things you plan to do within the next five years.
For your short-term goals, the general rule is to save into cash deposits, like bank accounts. The stock market might go up or down in the short-term and if you invest for less than five years you might make a loss.
Medium-term goals:Things you plan to do within the next 5-10 years.
For the medium-term, cash deposits might sometimes be the best answer, but it depends on how much risk you’re willing to take with your money to achieve a greater return on your investment. For example, if you’re planning to buy a property in seven years and you know you’ll need all your savings as a deposit and don’t want to risk your money, it might be safer to put your money into a savings account. However, bear in mind that your savings will still be at risk from inflation. This is where the interest you earn on your savings fails to keep up with the rate of inflation so the buying power of your money is reduced. Each pound you have today will buy less in the future. On the other hand, if you’re more flexible, you might consider investing your money if you’re prepared to take some risk with your original capital to try and achieve a greater return on your investment than would be possible by saving alone.
Longer-term goals are those where you will not need the money for ten years or more.
If you’re nearing 30, or older, you should be considering Retirement Planning. Most people invest in a pension, but other investments can be suitable too. For longer-term goals, it’s often best to invest because inflation can seriously affect the value of cash savings over the medium and long-term. The stock market tends to do better than cash over the long-term providing an opportunity for greater returns on any money invested over time, although risk should be considered as with Medium-term goals. This may also include Children’s savings and School fees plans