Are you wondering whether you should invest or save your cash? Check out the essential guide to spread betting, shares, and savings and learn what to do next
If you’ve got some money to put aside for a rainy day, you may be struggling with a dilemma: hold onto the cash or invest in shares?
Both of these have pros and cons, so it’s crucial to weigh them up carefully and consider your personal circumstances. There isn’t a right or a wrong answer, but there are some fundamental factors which you should take into account. Here’s a look at some of the essentials to help you reach a decision.
When to save
As a general rule, saving just means putting your money into a bank account, so you’ve got a buffer if needed. You shouldn’t really expect any significant returns on savings in the current climate, as the goal is not about growth, but security.
Everyone should have some accessible savings, just in case things go wrong. The generally accepted sum is equivalent to three months of your living expenses. The value of this will be different for everyone, but the idea is that the money you save would enable you to survive for three months if you suddenly had no income.
Once you’ve achieved your emergency fund, it’s an excellent idea to carry on saving. You could decide on a minimum sum every month, or set a percentage of your earnings. Some banking apps even allow you to save your change, an excellent way to top up your savings in a way you’ll barely notice.
When to invest
If you have your three-month emergency fund established, you are in a position to consider investing. Unlike saving, investing is about placing your money in an asset that will enable it to grow.
You can make investments for the short, medium, and long term – or a combination of them all. Many types of investments are more suited to long-term returns and offer very little in the short term.
Investing in shares in the stock market is better in the long term. This is because volatility can mean that your investment loses money in the short term, but you should eventually see growth and returns over time. It can be nerve-wracking if your investment starts to perform poorly but diversifying across different stocks and shares can provide some protection.
If the overall economy is in a downturn, investing in shares can feel like a huge risk. An alternative is spread betting, a way to secure returns even if the share price falls. Although it may sound like a complicated investment, it’s surprisingly easy to understand the value of using spread betting, and how it works.
The Solution? Both!
Both savings and investments offer benefits, and in an ideal world, you should have both. Establishing savings first is advisable, before moving onto investments for longer-term goals such as college funds or retirement. It is possible to have investments for the short term too, particularly spread betting. This versatile option enables you to hold a position for as long or as short as you want, and profit even in depressed trading conditions.