From an early age, we’re used to the idea of saving up for something special. We have piggy banks to incentivise us to put money away regularly.
As adults we take on a similar approach. We know that saving for a rainy day is the sensible thing to do because it means that if there’s something unexpected to pay for, or something we want to treat ourselves to, we’ll be able to cover it without going into debt.
Whether you’re saving or investing, the objective is the same, however there are differences between them. When planning your finances, it’s important to consider those differences in order to create an overall strategy that suits you best.
What are savings?
Savings are often made to achieve a short-term goal, like buying a new car or funding a holiday. Savings are often made bit-by-bit by putting money into a bank account. They are generally low-risk and can be accessed relatively quickly.
What are investments?
Investments are usually made to achieve long-term goals, like funding your retirement. They’re made by buying assets such as stocks, bonds or mutual funds with the expectation that your investment will make more money than simply depositing it in a savings account.
However, investments are designed to be held for a longer term, usually at least 5 years, which means they’re less easy to access. While the benefits are potentially high, the risks are also much greater - most investments do not guarantee to return your money in full.
What different types of investors are there?
Most people who have a pension are investors even if they don’t directly invest for themselves. That’s because pensions are usually held in investment vehicles such as equities, bonds or properties.
Others will invest on the stock market directly, or indirectly through a financial adviser who will manage their portfolio for them.
The advantage of this of course is that a financial adviser has the expertise to allocate the right money to the right assets based on your overall goals, your current financial situation, and your attitude to risk. This means they can create a very personal plan based on your own particular needs.
For example, if you’re approaching retirement, and wish to access your funds sooner, you’ll want a different approach to someone in their 40s who won’t retire for another 20-25 years. These different timescales mean you might want to do some saving and some investing, for example.
That’s why it’s important to speak to a financial adviser so they find out what matters to you most, what your long and short-term goals are, so they can create a plan that suits you.
WHAT I DO: I work to Inform, Educate and Uncomplicate busy professionals in aligning their money with their life through fiduciary financial planning.
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