A good place to start – what’s the difference between saving and investing? These terms are often confused but, in truth, they are miles apart.
Save your money or invest it?
The dilemma for anyone looking to make their money work harder.
Cash held in a savings account is protected up to a certain amount, and in time, will earn interest. But with interest rates low and unlikely to rise significantly in the immediate future, and living costs constantly increasing, saving your cash in this way isn’t without risk, because the real value of your savings is actually falling over time.
Investments involve more risk than savings, but they also offer the opportunity for greater returns.
They broadly fall into six key categories:
You can invest directly yourself by buying property or stocks and bonds. These options can demand a lot of your time, transaction fees can be high and practical limitations can also make this difficult.
Alternatively, you can choose to put some of your savings into an investment product known as an investment fund or investment trust. These products pool together different amounts of money from a number of individuals to make investments in the market. The goal is to increase the value of the investment and then share the rewards between the pooled investors.
With any type of investment, the potential for greater return comes with a higher level of risk, because the value of these assets can go up or down. So there’s always a possibility your investment could end up being worth less than when you started.
The key to determining what investment is best suited to your needs is understanding your financial goals and the level of risk you feel comfortable with.