Saving versus investing – The ‘important thing’ to ensure you do with either financial rou

Martin Lewis advises against children's savings in Premium Bonds

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As the low interest rates environment continues, and the UK rate of inflation surges, some may wonder whether investing could enable them to make their money work harder. James Appleby, wealth management expert and managing director of Tees financial, spoke to about savings and investing trends in the UK and the available options for Britons’ spare cash.

The COVID-19 pandemic has deeply affected financial markets across the world, and with so much uncertainty it’s no surprise that many Britons are willing to prefer keeping their cash in hand.

Whether it’s saving only or investing as well, it’s important to have a financial strategy in order to ensure one’s money can stretch as far as possible.

This strategy should ideally begin with savings, as setting aside any disposable income monthly may just be a saving grace in the future, whether it be for an emergency or holiday, the wealth management expert said.

“You need to set a savings budget that is right for you – work out how much you can realistically afford to save so you can set an amount that you feel you can commit to for the longer term,” commented Mr Appleby.

The main advantage of saving money rather than investing is the risk aspect – namely that there is no risk.

In a savings account, one’s money is only vulnerable to interest rates, and even in the worst-case scenario, the Financial Services Compensation Scheme ensures that a person can get up to £85,000 back if the holding company goes under.

The biggest disadvantage of saving instead of investing is the returns.

The Bank of England Base Rate currently sits at a record low, meaning that one’s savings will not grow according to inflation – and this could result in erosion of these savings as prices rise.

Mr Appleby said: “The key difference with investing is that, rather than a savings account, money is invested in assets such as stocks and shares, bonds or property, with the hope that you’ll end up with more money than you originally invested.

“The value of your money then depends on the performance of these assets and will rise and fall according to market conditions.”

Savings also have the advantage of being incredibly straight-forward – one’s money is placed into the account and will remain there, potentially growing slightly with interest.

Investing has a lot more avenues for one to venture down, and it’s suggested the most accessible for first-time investors is funds.

Mr Appleby explained: “The advantage of funds is that they are carefully selected and overseen by an expert fund manager, so you’ll benefit from a professional’s expertise and knowledge of the markets you’re looking to invest in.

“Secondly, because a fund enables you to invest across a wide range of assets – or ‘diversify’ – it won’t be as risky if one of them underperforms.

“For many of our clients who are taking their first steps into investing in the stock market, we find that a well-diversified fund invested through a stocks and shares ISA or a tracker fund is often the most suitable.”

Investing does require a particular mindset and some prior knowledge of markets, and it comes with its own share of disadvantages.

Mr Appleby continued: “Whilst investing isn’t for everybody, historically in the UK, investing in stocks and shares, has resulted in higher returns than cash and commercial property over the longer term.

“You can always access your money if you need to, but we don’t recommend trying to invest unless you can realistically tie up your cash for at least five, preferably 10 years.

“This is to give your money the best possible chance to grow. It’s important to remember when investing, that the value of your investments can go down as well as up.”

Mr Appleby concluded: “Ultimately, whether you choose to save or invest, the important thing is to start putting money aside for your future – and the earlier you start, the better the potential for growth. If you are just starting out on your investment journey, we would always recommend taking advice from an independent chartered financial adviser.”

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