The difference between savings and investments

Most of us try to save. For one thing, it’s the responsible thing to do in case we incur an unexpected expense. But we also save for things we have planned, whether it’s short-term saving for a holiday or a longer-term objective like retirement or paying for your child’s education.

While saving is a good habit, simply leaving it with a bank may not earn you a healthy rate of return to afford the kind of lifestyle you desire, and it is unlikely to keep pace with inflation.

While investing involves greater risk, it also offers the potential for greater growth of your money. A regular savings programme is a good way to start with personal investing. Before deciding on a direction to achieve your financial goals, it makes sense to work with a wealth manager to understand your timeframe and appetite for risk, before determining the right blend of assets to match your needs.

Lump sum and regular investment

You can choose whether to invest lump sums, regular amounts, or both. Which way you choose to invest could depend on your circumstances, what you want to achieve and your overall investment strategy.

It may be convenient for you to invest a lump sum if, for instance, you receive a windfall such as a bonus. You just need to bear in mind that, when investing a lump sum, you could be vulnerable to a sudden down-turn in the markets – so you should be comfortable with the risk level and have a strong conviction in your investment choice.

Some people find that making regular investments is better for their needs. Investing smaller amounts on a regular basis (say monthly) can smooth out the highs and lows of the price of your chosen investment. It’s also an extremely good way of disciplining yourself into saving as much as you should to ensure that you meet your long-term objectives.

Before deciding on the right plan of action for you in terms of establishing a regular investing routine, the first thing you must consider is the time frame associated with your plan, and how much money should you invest. As a rule, these are the time frames that most professional financial advisers would use:

Investment time-frame

  • Immediate needs refers to any arrangements where you expect to take the proceeds in 0 to 2 years
  • Short-term saving refers to any arrangement where you expect to take the proceeds in 5 years
  • A plan where the proceeds are expected in between 5 and 10 years is medium term
  • Anything above 10 years is considered to be long-term financial planning

The importance of advice

The idea of investing for the first time can seem a little daunting, but the days are gone when it was just for professionals and the very knowledgeable. Now you can let the professionals do it for you, whilst maintaining control and keeping a close eye on your progress.

A well-qualified and experienced wealth manager will have the skills to explain all your options and help recommend solutions that you feel confident and comfortable with.

The AAM Investment Research team works with you and your AAM wealth manager in order to provide ongoing advice and information as the economic environment and your circumstances change. AAM Advisory is also committed to ensuring that you always feel connected to your money; through our feedback and service standards but also through making sure that all our wealth managers have the knowledge and skills required to explain the rationale for all our recommendations.

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