Saving is a more of a general concept. You may be putting some money aside for those unexpected rainy days. Like, if your phone decides to take a swim or your washing machine breaks down, you’ve got money tucked away to fix the situation. Or you might be putting money aside for a dream holiday or a new ride. No doubt you would like an attractive interest rate to help reach your goal. But if the main reason for saving is to reach that goal, it is typically a more short-term objective.
So what about investing? Here the goal is not always crystal clear as you are putting money aside to fund a range of purchases in the future. Generally, there is a long term focus, such as investing for those golden retirement years. With investing, the return you receive on the money you are putting aside plays an important rolel in fast-tracking those goals. And investing includes a whole bunch of things to think about compared to savings, such as where will you invest your money. Shares, at-call bank deposits, bonds, property, gold, even bitcoin. The list really can seem endless.
But importantly there can be differences in the investments you choose in terms of risk and return. For instance you may get only modest returns from putting money in the bank, but you might not be as worried about getting your principal (that is, your savings) back. Whilst the idea of scoring big returns from bitcoin may seem exciting, it also comes with the flip side, the idea of waving goodbye to some, or all, of your principal. It all comes down to weighing up the risks and likely returns on potential investments and of course, risk tolerance is different for everyone. This is where some people turn towards a financial advisor to help them with the right mix of investments to grow their wealth and reach their goals.
Whatever you decide, as you embark on your savings or your investment journey, it is handy to consider the below:
- If you start saving early and are consistent with putting money aside, the quicker you will likely be in achieving your goals.
- Start small, and lift your savings gradually over time.
- If you spread your savings over a number of investments (diversify) then you are more likely to reduce the risk of losing some or all your funds.
- Plans should be realistic and you should be adaptable and be prepared to pivot as your circumstances change.
Author: Craig James, Chief Equities Economist
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