Whatever your financial situation, it’s a good idea to build up some sort of savings, whether for
emergencies, luxuries such as holidays or to fall back on should things not go to plan. However, it
can be tricky to know whether to simply set money aside by taking advantage of low-risk savings
accounts such as ISAs, or whether to invest your hard-earned cash.
The ideal scenario, especially in this current volatile economic climate is to build a pot of savings alongside investing.
To do this, however, you’ll need a healthy balance of spare funds to tide you over should anything go wrong, as well as
extra to set aside for investing.
The key differences
Saving is generally viewed as a short-term strategy, for when you have a specific goal in mind or if
you currently have little in the way of spare cash. There are many savings accounts that come with
relatively no risk so it can be a good way to put away some money each month from your salary or
earnings to build up a bigger pot.
It’s also a good idea to have funds in place for any unexpected situation such as losing a job or
having to fork out for a large expense. These types of savings should be readily accessible and allow
you instant access should you need it.
Investments are usually thought of as longer-term strategies and can be riskier options in
comparison to saving. Investing involves putting your finances into something, usually a stock or
physical item such as a house or artwork, with the intention of receiving a return over time. It carries
more risk due to the fact that markets can change greatly over both long and short-term periods so,
whilst there is potentially more opportunity to make gains, there’s also a bigger chance of loss.
Why should you invest?
If you’ve got a healthy stack of savings that can be accessed in case of emergencies, then it might be
wise to consider investing as well. Generally, many investments do increase in the long-term,
meaning that if you’re able to rely on another source of funds in the meantime, this might be a
lucrative option for the future as it could provide a greater return. Due to interest rates on most
accounts, savings are unlikely to earn you much, or, if they do, you might be waiting a very long time
to see the rewards.
There are a range of investments available and it’s worth researching what might work best for you
and your finances. Some types of investments include CFD trading, stocks, commodities, property
and bonds. It’s important to diversify your investments, however, and not rely on one singular
source, to balance the risk across your portfolio and reduce the chances of losing a large amount of cash.