Nov/10 - To save or invest...that is the question
What is the difference I hear you ask? Well if you have an event some time in the future that needs paying for you would normally put money aside each month so that the money is available.
Most people would put monthly into a savings account with their bank or building society. Some will even put their spare cash into a biscuit tin and hide it under the bed.
Current interest rates for savers are so low at the moment, with no sign that they are going to get much better over the next 12 months, so your capital is hardly increasing at all. This means it will take longer to save for the special event.
Stocks and Shares ISA's
An alternative would be to invest in a regular premium stocks and shares ISA that is invested in a selection of funds that, overall matches the level of risk that you are prepared to take.
This will expose you to equity, bond and property funds which as we all know can go down as well as up but if the special event is 5 or more years away then there is a very good chance that you will enjoy more growth than the interest that you will get from the bank.
The moral of this is that “it takes longer to save for an event than it does if you invest for the event.”
There are caveats though, the time frame should be at least 5 years and you need to be aware that your investment can go down as well as up.
Other Alternatives
If you agree with the concept of investing but have used up your ISA allowance there are other alternatives.
You can invest in a regular savings OEIC (unit trust in old money!) that doesn’t enjoy the tax-free status of an ISA but allows access to the same type of funds.
Friendly Society savings plans will allow you to save up to £25 per month in a very tax efficient way but the minimum term is 10 years to get the tax benefits.
Similarly the much maligned maximum investment plan is making a comeback.
This is basically a savings endowment plan; again this needs to be for a term of at least 10 years.
These were very popular some time ago but gained a bad reputation because they used to earn the sales adviser high commission which was funded out of your first year’s premiums meaning that if you had to surrender the plan in the early years then you got very little back.
There is a new breed of this type of plan that is much better priced in favour of the investor, as it should be, which gives another option if you need to invest for the future.
These are only a selection of the types of regular investment plans that are available; I can discuss all your options with you if you are interested in planning for the future.
Investment Summary
So, to summarise, we all have special events in the future that we will need money for, it can be a special wedding anniversary, children’s university fees, grandchild’s 18th or 21st birthday or your retirement.
You will want to have as much money as you can by the time the event arrives. Saving in the bank will achieve this goal but you will have to give yourself enough time to build up a capital sum as you will get very little interest from the bank.
Your alternative is to invest in funds that expose your savings to a degree of risk but offer the opportunity for better growth than is currently available from a savings account with the bank.
If you would like to arrange a meeting with one of our Advisers to discuss how we can help you please contact us.