What’s the difference between saving and investing?
While both options involve saving money for the future, there are some key differences between saving and investing.
Saving your money
To save your money you can make a one-off payment or regular deposits into a savings account. If this account is an easy-access account you can withdraw the money as and when you want to, plus any interest it has earned.
While saving is often see as a low-risk way of preparing for the future, the value of your savings can be reduced through inflation. When interest rates don’t rise as quickly as inflation, the buying power of your savings gradually recedes over time. Read our article to see how inflation affects your savings.
Investing your money
When you invest your money, you are putting it into a business or project that you believe will grow in value. When investing you should be prepared to leave your money for at least five years before considering a withdrawal.
Investing your money is also riskier than saving it. Depending on the level of risk in your portfolio, your money could swing between making considerable profits and losses during the investment term.
There are different ways to invest your money, here are some of the main ways
- Investment funds. A fund manager invests your money for you (and others) using their expertise and knowledge to find opportunities with potential for growth.
- Shares. Buy a portion of a company by owning some of its shares. Your return will depend on how well the company performs on the live stock exchange.
- Bonds. When you buy a bond you are purchasing a portion of debt from a company or the government. At the end of the agreement, you should get your money back with interest on top.
- Property. Buying commercial real estate is also another way to invest your money.
Should I save or invest my money?
The decision between saving or investing your money is a tough one, and it all comes down to your own personal circumstances. The first question to ask is will you need to access your money before five years? If the answer is yes, then saving is your best option.
You also need to think about how comfortable you are with risk, can you afford to lose the money you invest?
Finally, before investing ensure you have an emergency fund saved. The recommended amount to have saved is at least 6 months of expenditure.
If you are considering investing your money The Bateman Group can help. Get in touch by calling us on 01926 405 883.
