Saving vs Investing: What’s the Best Option?
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If you’re looking to achieve financial security, then saving or investing your money is usually an excellent place to start.
But what’s the difference between saving and investing your money?
Well, the purpose of investing vs the purpose of saving is simple:
Saving means setting aside money for future use, whilst investing involves using money to purchase assets that you expect to produce future profit or income.
These assets typically include property, stocks, bonds, or cryptocurrency.
But which one should you pick?
Is one way better than the other?
In the latter half of 2022, when interest rates and inflation hit new heights, many financial experts have urged savers to avoid keeping their money sitting in bank accounts and instead find ways to maximise their income.
Find out whether saving vs investing your money is the best option for you by reading our informative guide.
Should I Save My Money?
When looking at saving money vs investing, saving offers these perks:
Your savings will not change in value
Because you’re essentially stockpiling your income, a savings account will not fluctuate in value due to external factors. The stock market could crash and burn out of the blue, but your savings balance won’t change unless you make any withdrawals. This brings us to the next advantage…
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You can use your savings right now (or whenever you want)
Money is a liquid asset – meaning you can directly use it to buy things, pay bills/debts, or any other living expenses whenever you need to.
If you’d used the money in an investment, like stocks or bonds, you would have to convert them first before you could spend them. With property investment, you may also have to wait for a certain period of time before you can use or see better returns.
A month’s worth of income from property investment can often see higher returns, but you would also have a month’s worth of wait before you could use it.
Saving money allows you to invest in the future
It seems slightly obvious, but you can’t invest unless you have the money. The best way to achieve your financial goals is to have enough cash saved first before getting started. A good rule of thumb is to have a cash savings balance to offset any risk that may pop up in any investment scenario.
If an emergency were to pop up, you feasibly have enough money stored to cover any expense – which also protects you from having to sell your assets before they’ve appreciated.
Why Should I Not Save My Money?
Saving is not completely perfect, though.
There are two distinct disadvantages when looking at saving vs investing money:
Savings can bring negative returns after inflation
Money loses value over time. It’s a sad fact of inflation – rising prices typically lower spending power.
When you keep your money in a savings account, you will not see the value decrease. However, if you save your money for a longer time frame, the rate of inflation means that it may not have the same buying/spending power it did when you first put it away.
For example, in the 1970s, £1 could get you ten loaves of bread. Fast forward a couple of decades, and in 2022, you’d be lucky to get one loaf for £1 – who knows what another ten years could bring?
Investing Provides Higher Returns Than Saving
It’s true that having cash on hand is a nice thing to have whenever an emergency emerges, but if you’re looking towards your longer-term goals finance-wise, the level of risk that comes with investment may be worth braving any storm.
It could also be said that the longer you’re sitting on your money, the more time you’re missing out on investing and seeing (depending on interest rates) better, inflation-beating returns than saving could ever provide you with.
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Should I Invest My Money?
The purpose of investing vs the purpose of saving often depends on what you’re looking for.
If you’re seeking solid returns, then investing your money may just beat saving it.
When looking at investing vs saving, investing offers these perks:
The Potential for Better Returns is High
In the short term, saving might be your better option. Saving is probably your best method of securing any short-term goals (such as holidays, repairs or general living expenses).
However, if you want the chance to grow your money more than you could with cash alone, then investing might be the best option for you.
Depending on your personal finance, the value of your investment, and which investment products you choose to engage with, investing your money vs saving it could potentially provide you with more lucrative returns – so long as you play your cards right.
The growth potential with investing is much higher than saving. Saving vs investing will typically provide limited potential for growth because, as past performance has proved, any money saved will be steadily eroded by the rising rate of inflation.
Investing, on the other hand, can often be the better option – especially during periods of inflation.
For example, property investment during inflation can often bring solid growth potential and higher returns in comparison to saving.
Over the last year alone, rental prices have increased by 11.8%. Even more growth is expected over the next five years, with forecasts for the North West seeing an average growth of 11.7% by 2027 – one of the highest levels in the country.
In addition to the attraction of rising rental prices, the value of properties is also growing. Across the UK, there is an expected increase in value of 12.9% over the next five years, meaning that any property you invest in will be worth more over time.
There are, of course, downsides to investing vs saving depending on your goals and circumstances:
Investment is a Long-Term Commitment
Investment takes time and is quite a bit more complex than simply saving your money. As mentioned, you must take the time to research all areas of an asset, regardless of which one you choose. With all investments, you will be battling fluctuating markets, new innovations and, arguably, time itself.
A lot of pressure.
Again with property, the most successful investors will allow for prices to increase for many years before selling for a big cash payout to combine with the rental income they’ve generated.
The basic point is this:
If you want a quick return, then investing vs saving may not be the perfect strategy for you.
However, if you’re willing to put the time in, you could have much greater growth potential and higher returns.
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Should I Focus on Saving or Investing?
Of course, having the safety net of a savings account is a fantastic thing to have – no matter your current situation.
If that rainy day finally does come along, and you find yourself in need of an emergency fund, it is always nice to actually have something in your back pocket.
However, at some point, once you’ve stockpiled enough money, savers should think about turning their focus towards reallocating some of these savings to investment opportunities.
If you want to maximise the amount of money you can earn – whether it’s planning for long-term goals like retirement or boosting your current income – then investing can be a huge help.
The main rule to stick to is to make sure that you still have access to cash when you need it – which means that you must meet certain criteria before taking on the risk of something like the stock market or cryptocurrency.
Before jumping in, you should ask yourself three questions:
● Do I have an emergency fund in place?
● Am I ready for a long-term investment commitment?
● Am I aware of the risks?
Is It Better to Save or Invest?
Well, that all depends on your personal circumstances and financial goals.
Investing can potentially offer much higher returns in comparison to opening a savings account, but you will have to accept some level of risk.
Saving is much more low-risk, and if you’re looking to achieve something in the short term, then you will probably be better off holding your money where you pick it out with easy access whenever necessary.
However, with this security, you will be stunting the opportunity for any notable growth.
Investing vs saving does come with a higher level of risk in pursuit of higher reward, but it is perfect for those seeking more long-term goals.
Having some high-yield savings in your back pocket, though, can be rewarding in this pursuit. The last thing you need is to hit a financial rough patch without an emergency fund.
The answer, really, then, is to have a nice combination of the two.
Without the safety net of proper emergency savings, the investment will not yield success for your financial goals.
Equally, without investment, your savings will not be allowed to flourish.
So, it is essential that you find the perfect strategy to suit both.
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Why Should I Consider Property Investment in 2022 and 2023?
Property investment is arguably one of the most profitable and continually growing investment opportunities to get involved with at the moment – for both UK and overseas investors.
Recently, the UK has seen massive demand for rental properties, and as a result of supply issues, this is expected to last well into 2023.
For those looking to invest in buy to let property, this is a fantastic opportunity.
Not only is your job made easier with an expected steady influx of potential tenants ready to move in at the drop of a hat, but you can also expect to benefit from strong capital appreciation as the market value of your investment properties grows.
With property being a physical asset that grows in value over time, you can expect to see higher returns as the value of your property increases greatly over time.
There is also strong growth potential with property investment, with the latest data from the Land Registry’s UK House Price Index stating that house prices have grown by 13.6% in the past 12 months from August 2022, with room for even more considerable growth.
Whilst other investment options, like cryptocurrency or stocks, may have much lower entry costs for beginners in comparison to the property, this does not necessarily result in better returns or low-risk investment.
Firstly, taking into account the combination of steadily rising capital and price growth, investment properties are by and large worth the higher entry cost.
Secondly, unlike other investment options such as cryptocurrency or stocks, there is little chance of the housing market experiencing major instability.
Investing now puts you in a position to make the most of the rising rental prices expected across the UK, with some of the best places to invest expected to see increases by at least 3% by the end of this year alone.
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Reece Pape
Reece Pape is a property writer at RWinvest. Reece is passionate about keeping property investors updated on must-have information and housing market news, utilising the latest property market statistics and data.
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