Saving or investing?
Updated: Apr 9
We all know it’s sensible to save for a rainy day. Nobody wants to be faced with unexpected costs – a new boiler perhaps, or a sudden drop in income – with no way to meet this.
If you can afford to, you may also be saving over and above this. This might be a short-term goal, like a few weeks in the sun, or it could be a longer-term goal. You may even be saving just because you can.
So, should you save your money in savings accounts, which pay interest, or should you invest instead?
Well, the right way for you will depend on you. It will depend on how long you want to save your money for, what your goal is, and – importantly – how much risk you are willing and able to accept.
For instance, if you are saving a little each month for a short-term goal, or if you may need to access your savings, then cash is usually best. The interest you earn may not be much, but your money is safe and accessible.
However, if you have a longer-term goal then investing may be more appropriate. Investing is riskier than cash, but the potential rewards are greater. Cash savings probably won’t keep up with inflation, and over a longer term the effect of a below-inflation return on your savings can significantly reduce the value of your money, while investing offers the prospect of real growth.
But if you decide to invest, what should you invest in? Well, this again depends on you - your circumstances, your needs and goals, and how much risk you can, and want, to take. One thing that is almost always true, however, is that you shouldn’t put all your eggs in one basket. By sharing your money between different types of investments, the risk is spread, which means there is less chance you might lose money instead of making money. So how should you spread the risk?
For the self-investor, knowing the best way to spread and manage risk can be the biggest challenge – which is why people who self-invest are more likely to take unexpected risks and make mistakes, while research demonstrates that people who seek advice first achieve better returns.
Professional help from a suitably qualified financial adviser can help you avoid expensive mistakes while ensuring your money is invested in the right way for you, taking into account both objective measures, such as your aims or goals and how long you want to tie your money up for, and subjective measures like your own attitude towards investing and the potential risks this involves.
In fact, research undertaken by the think tank the International Centre for Longevity found that people who take financial advice are more than £47,000 better off than those who don’t after ten years!
So, whether you choose to save or to invest will depend on what you are hoping to achieve, and over what timescale. But if you are looking at longer-term goals, then it is crucial that you seek professional advice from the right adviser.
I would, of course, recommend myself, although if in doubt about who to turn to then you could use resources like www.unbiased.co.uk or www.vouchedfor.co.uk, which both provide an impartial free-to-consumer resource of trusted financial advisers across the UK so that you can be confident anybody you are connected to is trusted, vetted, and capable. You can, and should, also check the Financial Conduct Authority’s register at https://register.fca.org.uk/ to make sure the individual and firm you are dealing with is authorised and regulated to provide appropriate financial advice.
The options and choices available and the dizzying array of technical terms leaves many with the impression that investing is too complicated to understand, but a good financial adviser should be capable of explaining everything clearly in simple, every day, language while working with you to make sure any decisions you take are in your best interests.
Good luck, and I’m here if you need me – I’m not a salesman and I don’t charge anything for a chat :)
This post is generic and does not constitute any form of financial or investment advice or recommendation, which is always specific to individual needs.
All blog posts are written by Dylan Roberts in a personal capacity and do not necessarily reflect the views of Lighthouse Financial Advice Ltd, Lighthouse Group, Quilter Financial Planning, or Quilter plc.
The value of pensions and investments can fall as well as rise, and you could get back less than you invested.