Everyone wishes to have a financially secured future. Financial security can vary from person to person. For example you may desire to purchase a home, fund for your children’s education, get married, go on once in lifetime holiday or fund for your retirement. So what are you doing to secure yourself financially? Should you be saving or investing? Let’s have a look at the differences between the two and which questions you should be asking yourself.
How much time do I have?
Saving is typically for smaller objectives, accomplished in a short term, usually between 1-5 years. If you’re looking to purchase a new car, go on a holiday, save a deposit for a house or buy a wedding ring saving is a good option for you. On the other hand, investing is typically for a larger objective accomplished in a longer term, usually 5+ years. If you’re looking to fund your child’s education, purchase a home or fund for your retirement, then investing may be a good option for you.
What access do I want to my money?
If you need immediate access to cash, savings can serve as a good option. In the case of investing, access to your money depends on the type of investment you are in, however usually you would have early exit charges for the first 3-5 years.
What is the risk?
If you have savings in a deposit account with your bank the risk of losing money is lower compared to any investments. Your savings accumulate interest, however typically they produce lower returns than investments. Investments can involve risk pending returns which typically relate to the term of the investment, market situations or the type of asset class chosen. Investing in equity markets comes with an inherent risk. You might lose money if not invested in quality stocks with long term growth potential companies. Hence it is advisable to avail of services from expert financial advisors. Risk in investing varies according to the channels of investment. If your money is invested in good quality funds with long term views, then short term ups and downs along the way should not affect your outlook towards such investments. Hastings Insurance provide details of such funds thereby indicating the possible risk involved. Investing wisely may give returns much higher than savings in the long run.
What growth do I want?
If you have savings in a fixed term deposit account with your bank, on average, you may earn interest up to about 1% p/a. Interest on normal deposit accounts is often much lower. However, the investments in equity based funds carry much higher potential for long term value growth. Quality investments have higher potential returns than regular savings if compared for a long term of about 5-10 years.
What are my choices?
The best thing to do is to first identify your purpose. Why do you want to save or invest your money? You need to ask yourself whether your goals are short term or long term. It’s always wise to save money for small term goals, emergencies and casual expenses as it provides quick access. This makes it easier to meet small goals. But in the long run savings may fall short for bigger financial goals. Remember, If you are planning for your future, it’s advisable to start investing at a young age but it’s never too late. Savings are for the present and investments are for the future. Investments are made typically for bigger financial goals which may seem impossible now but would be possible in the time to come if they are wisely planned today. Investing smartly is the key to meeting such goals. It is recommended to save for small term goals but investing simultaneously help to achieve your long term dreams.
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