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With the cost of living soaring across the UK for all, bolstered by rising energy costs and inflated food prices, making your money work hard for you by investing is something many should be thinking about in the future. However, we accept, deciding whether you should invest at a time when the world feels more volatile than ever can be a frightening experience for anyone. 

Whether you’re thinking of leaping into an investment product like a stocks and shares ISA – which will give you exposure to the stock market, or you already have an investment portfolio, deciding to invest further or save your money in a bank account/cash ISA needs some consideration of the risks involved with both saving and investing. 

Once you understand the challenges involved with both strategies, you’ll be better positioned to move forwards towards your financial goals. Whether that’s investing for the first time, investing further, or saving for something you’ve had your eye on, you’ll be better positioned to make a decision. 

Risk & Reward – Don’t be left behind! 

It is no secret that investments can fall in value as well as rise and believe us when we say, concerns about investment performance is a common deterrent for any would-be investors. However, with inflation increasing relentlessly, those who stay solely in cash savings risk being left behind by those invested. This is typically because the impact inflation has on cash. For example, if you have £100 and over the next year, the inflation rate is 10%, at the end of the year the face value of your money remains at £100. But thanks to inflation, after 12 months you will need to spend £110 to buy what your original £100 would have bought you a year earlier. In other words, your original £100 is ‘worth’ 10% less than it was a year ago. 

This could result in you not making the most of your money, or making it work hard for you as we put it, which could mean you fall short of achieving your financial goals in the long run. 

To meet any short-term needs, cash savings will be beneficial, However, when thinking long-term, investing has been proven to work better. Whilst cash provides security of your capital, albeit a depreciating value as pointed out in the above, riskier assets tend to do better over a long period and therefore will help you build wealth more effectively. 

Finding the right balance between risk and reward is critical for every investor. Reviewing the right balance periodically is just as valuable. Whilst it’s essential to make the most of your money, it’s also important you feel comfortable with your approach. Having a financial plan in place and reviewing it every year with an adviser to ensure you are taking on an appropriate level of risk, plays a pivotal role in getting your approach right. 

‘I want to invest’ But, what to invest in? 

Whilst the world is a washed with stock pickers, we’re sure you’ve overheard someone talking specifically about one share and its performance, we recommend investors gain stock market exposure – and risk – through funds instead of individual shares. These are investments across several different companies, grouped together into a fund. 

There are thousands to choose from and finding a suitable one or ‘basket’ of funds to invest in can be rather daunting in itself. If you’d like a ready-made portfolio of investments and don’t know where to start looking, our team of Chartered Financial Advisers would be happy to discuss your needs and advise on an appropriate selection of investments to suit your level of risk. 

Whether you’re saving or indeed, investing, it’s recommended to keep and emergency/rainy day fund in cash – this is typically three to six months of salary in size. This fund will allow you to feel more comfortable when you do spend and provide peace of mind your longer-term goals are not affected by your short-term needs. 

‘Investing is complex!’ – Seek advice… 

For many, the thought of investing is complicated. Spending time researching and managing an investment portfolio is too much of a challenge. There are several ways to invest which are straightforward and low maintenance, yet still very effective. One simple method is to invest in a ‘tracker fund’. These aim to replicate the performance of a market through owning all or most of the companies within it. For example, a global tracker will cover a large proportion of all the companies in the world. 

Another way to invest for simplicity is a multi-asset fund. These are professionally managed, diverse portfolios invested into multiple areas as a single investment. 

For those not confident managing investment choices, seeking professional advice is recommended. Having an adviser could be the difference between reaching your financial goals or falling short. 

Making sense of it all 

Everyone with a pension, and let’s face it that’s most people in today’s world, has a pension. You’ll receive a pension statement and a list of holdings in which you are invested into and it’s full of off-putting financial jargon. Most of the time people have no idea what is meant by what is written and skip to see what their portfolio will be worth in the future. Don’t panic if that’s you, you’re not alone, financial literacy is at an all-time low in the UK.  

Santander UK found that 44 per cent of adults feel they would be better financially prepared had they received a better financial education, and aGreenlight study found that 74 per cent of teenagers do not feel confident about their current financial education. 

Worldwide, just 1-in-3 adults show an understanding of basic financial concepts. For example, the term ‘equities’ is less understood than the term ‘shares’ – they are one of the same thing. 

So, should you save or invest? 

If you haven’t already come to a decision, before deciding on whether you should save or invest, obtain a written financial plan and explore how you are going to meet both your short- and long-term financial goals. 

As financial advisers, it is our purpose to not only help you reach your financial goals but to also answer the questions you have around financial jargon. Helping you make the most of your money whilst understanding the terms associated with it too! 

Our experts suggest you need a balance of both. Savings for short-term needs, investments for long-term needs.  

To ensure you have the right balance between savings and investments speak to a member of our team, book a free initial meeting and start discussing your personal finance needs in more detail to help you achieve your financial goals.