Let’s talk about investments
The number of people investing their money is on the rise, but what should you be aware of and what are the differences between investing and saving? We aim to provide you with information to help you make smart, responsible financial decisions.
The difference between savings accounts and investments
An investment is an asset or item purchased with the hope that it will generate income or appreciate in value in the future. For some, this has generated large profits, but others have lost money through investments.
A savings account is a deposit account held at a financial institution that provides principal security and usually earns interest or a dividend.
Why is investing on the rise?
Investing has become extremely popular over recent years with reports indicating people are investing at a “younger age, with fewer assets, and they are using new technologies to get started”. These new technologies, such as DIY investment platforms, have seen a 34% increase in assets in 2021. Apps such as ‘Etoro’, along with an ever-growing list of similar investment platforms, facilitate adults aged 18 and over to make investments straight from their phones making investing extremely easy.
Understanding the risk
Typically, any money you have in a savings account can generate a return, based on your balance and the interest rate applied. While savings account holders may see a smaller financial return than the potential return they could get from investing, they also do not face the same risk of investing as unfortunately profits are not always guaranteed.
Why do people invest?
- There is a potential to gain a larger return on investments than the return on a savings account
- Potential protection against inflation on your financial return. As investments can potentially generate a larger percentage of profit, the return on your investment could withstand inflation changes in a better way than the return generated from your savings
What else should I bear in mind before investing?
- Some investments have a significantly higher risk compared to the risk level when saving
- The larger the investment, the larger the risk is
- Do not rely on investments to give you financial stability. Investments unfortunately do not always go as planned, having the potential to make a loss
- Understand how much you can realistically afford to invest by using our budget planner to assess your level of disposable income.
- A growing proportion of users on the social media platform Instagram are being contacted by ‘traders’ guaranteeing that they can make you money by investing with them. Unfortunately, messages such as these can be dangerous and extremely misleading as no one can guarantee a profit
- Do you know the level of risk? Spend time educating yourself on what you’re doing and ensure you are fully aware of what could go wrong
Disclaimer: While we have provided you with a basic overview of investing, we do not recommend anyone make an investment from reading this article. If you are thinking about investing, then please contact a financial advisor to ensure you are making responsible, informed financial decisions.
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