If you’re wondering whether you should save or invest for the New Year, the answer depends on your goals and your financial situation.
Are you ready to invest?
Whether or not it makes sense for you depends on your goals – specifically if they are long, short, or medium term.
Short-term goals – are things you plan to do within the next five years.
Medium-term goals – are things you plan to do within the next 5-10 years.
Longer-term goals – are ones where you won’t need the money for ten years or more.
Short-term goals
For your short-term goals, the general rule is to save into cash deposits, like bank accounts.
The stock market might go up or down in the short-term and if you invest for less than five years you might make a loss.
Medium-term goals
For the medium-term, cash deposits might sometimes be the best answer, but it depends on how much risk you’re willing to take with your money to achieve a greater return on your investment.
For example, if you’re planning to buy a property in seven years and you know you’ll need all your savings as a deposit and don’t want to risk your money, it might be safer to put your money into a savings account.
However, bear in mind that your savings will still be at risk from inflation.
This is where the interest you earn on your savings fails to keep up with the rate of inflation, so the buying power of your money is reduced.
On the other hand, if your needs are more flexible, you might consider investing your money if you’re prepared to take some risk with your original capital to try and achieve a greater return on your investment than would be possible by saving alone.
Longer-term goals
If you’re nearing 30, or older, you might want to consider investing towards your retirement, although other investments can be suitable too.
For longer-term goals, you may want to consider investing because inflation can seriously affect the value of cash savings over the medium and long-term.
The stock market tends to do better than cash over the long-term providing an opportunity for greater returns on any money invested over time.
You can lower the level of risk you take when you invest by spreading your money across different types of investments. This is called diversification.
