Should I Save Or Invest? That Is The Question

Elaine Bowes sheds light on the difference between saving and investment, and provides tips on how to go about investing your money

We are all familiar with the concept of saving. A saver will regularly set aside a sum of money in a vehicle to which they can gain instant or easy access. These savings will provide security that, should an emergency arise, the saver can bear any costs without the need to borrow. People may also save for a large item or event — such as a car, deposit on a house or for a wedding — and need to access that money immediately, without a notice period.  Anyone putting money aside in this way will want to get the best return on their savings with respect to interest payments.  

Saving is essential and at PCU we encourage our members to save regularly; to include savings in their budget plans; and, where feasible, to continue to save even when they are repaying a loan through the credit union’s ‘save as you borrow’ principle. Research has demonstrated that a savings mindset develops an element of financial empowerment and resilience in the saver, and a ‘future focus’ with respect to making their money work better for them in the longer term, i.e. investing.

So, what is an investment?

An investment is an asset or item acquired with the goal of generating an increase in the value of that asset over time. Investments are not an instant access matter. It requires a long-term commitment to leave the funds in the chosen investment vehicle long enough to grow. It is important to note, however, that the value of your investment can go down as well as up, so you need to ensure you understand about investing, and that you have the right type of investment for your personal tolerance of risk.     

Questions relating to how you start investing, when and what type of vehicle you should invest in require careful research and consideration. You don’t have to be an expert to be a successful investor, but taking some time to understand what you’re investing in should give you a better chance of achieving your financial goals.

According to the Financial Conduct Authority (FCA), there are five essential steps to help you choose investments that suit your needs and aims, helping you to become a smarter investor over the long term.

1. Are you really ready to invest for the long term? 

Before you are ready to invest, it’s worth making sure that your immediate financial circumstances are in the right shape. Prioritise paying off any short-term debt; build an emergency cash fund; and consider investing more via your workplace pension. The following are definite noes:

  • Do not use your emergency cash fund to invest, and 
  • Never invest using a credit card 

2. How does your investment choice affect what you might get back? 

Most people who choose to invest do so in funds that spread risk across multiple companies, industries and even countries. Spreading your risk can help to build long-term gains. Diversification is the practice of spreading your investments around, so that you limit your exposure to any one type of asset. This practice is designed to help reduce the volatility of your portfolio over time.  

3. How much risk are you exposing your money to? 

Investing involves taking a degree of risk. Generally, the more risk you take, the higher the potential reward — but also the higher potential for losses. It’s important that you work out how much risk you’re willing and able to take. The FCA advises that, with high-risk investments like crypto, contracts for differences (CFDs) and mini-bonds, you should be prepared to lose all the money you’ve invested should things go wrong.

4. What’s the investment going to cost in fees/charges? 

Expect an investment company to charge for the services you use, but as these charges can impact your investment returns over time, it makes sense to understand what they are. Comparing products from different providers — and what they charge — can help you get good value for the investment services that best fit your needs.

5. Are the company and investment regulated? 

Before buying any investment, an important first step is to check that the firm is regulated by the FCA. You should also make sure the firm is authorised to sell you the product they are offering. Not all products or services sold by regulated firms are covered by FCA regulation (www.fca.org.uk/firms/financial-services-register).

Conclusion

When you invest, it’s your hard-earned money that’s at stake! So, it makes sense to take some time to research your investment options to give yourself the best chance of success. 

Getting advice from an FCA-regulated Financial Adviser can be helpful.

Whichever route you choose when investing, learning about the risks and opportunities of any investments you are considering should help you to become a smarter investor over the long term.

Elaine Bowes is Head of Marketing and Communications at the Pentecostal Credit Union (www.pcuuk.com) and a lead member of the Black Church Domestic Abuse Forum (www.bcdaf.org.uk)

Written by: Elaines Bowes

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