We all know that we should be saving for a rainy day, but what are the benefits of investing over simply saving? Do you know when the best time to start investing is or what’s a good investment opportunity? Here is a look at whether it’s a good idea to stop just saving and start to invest some of your money.
The wide array of financial products available can be confusing, so it’s best to do some research and seek advice before making any large commitments. At moneysupermarket.com you will find information about savings accounts, ISAs and a number of other investment products.
The Difference Between Savings and Investments
Savings, such as bank or building society accounts or cash ISAs, are risk free and good short-term options, especially if you need to access your money quickly. Investments, on the other hand, are a good choice if you’re looking to make at least a five-year commitment. The options include buying shares, investment funds and stocks and shares ISAs. They are a higher-risk strategy, as you could lose some or all of the value, but they are also more likely to make a bigger profit in the long term.
Whether you stop simply saving and start investing depends on your current financial situation. The general consensus is that you should have at least three months expenditure saved up in an easy-access account before you commit money to investment opportunities. You should also be free of debt, apart from your mortgage, as the money you earn in interest will be outweighed by the interest charges on any loans or credit cards.
What Are Your Goals?
Once you’re in a secure financial position, consider what your short- and long-term goals are, as this will determine where the bulk of your spare money should go. If your goals are more immediate, such as saving for a new car or a deposit on a house, then you would probably be better placing the money in a high-interest savings account where you can access it fairly easily. However, it you are looking to save for your retirement or your children’s university education and want to invest for a minimum of five years then investments will more likely achieve a higher yield than cash savings.
Most people will have a number of different goals, so will be looking to contribute to both savings and investments on a regular basis. Consider all your options carefully and make sure you seek independent advice on the right direction to take. However, the general rule is if you are going to need the money in the next few years you would be wiser to put it into savings.