The decision to save or invest for future financial gain requires a lot of thought and research. The correct decision will depend entirely on whether you wish to save for something in the short term or you wish to invest for long term goals. This article aims to highlight the pros and cons of investing and saving, so that you will be able to make a more informed choice.
Deciding on whether you wish to save or invest depends on what you wish to use your money for, for example if you are saving for a holiday or deposit on a house you will more than likely require access to your money in the next few years. In contrast if you are saving for your retirement you will be able to save your money for a longer term to maximise profit.
It is always useful to get expert advice when making financial decisions, Chris Pivik is a private equity investment analyst who has years of experience.
Investing your money is not without risk, but is likely to have a higher financial return in comparison to saving. Investing should be seen as a long term option of 10 years or more.
What is the difference between saving and investing?
Saving – Saving is a low risk option, but your returns will be governed by the interest rate, which is currently low. Saving accounts are easy to set up and allow easy access to funds, especially useful if you require your money quickly in cases of financial emergencies. There is no risk to your capital as your savings will receive some protection. Your savings will receive interest and will steadily grow. It is easy to schedule monthly amounts to be put into a savings account, therefore making budgeting easy. One thing to consider though is as years pass it is possible for inflation to rise above interest rates, if this happens the “real value” of your savings can drop.
Investment – Investment involves risk and potentially you could end up with less money than you started. However, investments that do well are extremely profitable, providing higher returns than savings. Investing your money should be seen as a long term goal, to allow fluctuations in the market, the longer you invest the higher the potential returns. Investments are usually made in stocks and shares, but you could consider investing in properties or commodities. It is a good idea to build an investment portfolio, so you don’t put all your eggs in one basket – so to speak.
To conclude it is important to devise a plan of your future financial goals. All your goals will have different timescales for when you want to achieve them. If your goals are mainly long-term it would be a good idea to research investing your money. Short-term goals may be better served by saving. If you have a mixture you could consider a mixture of investments and saving plans. Whichever you choose always seek good independent financial advice.