When people think of investing, they often think of the risk involved too quickly than they think of the benefits. Whilst investing comes with different levels of risk, it also comes with the opportunity for a reward too. If your aim is to grow your money over a long period of time, then investing is probably a good option for you over savings.
So, would you like to grow your money? Then investing could help you reach some big financial goals. Here we give you three reasons why you should think about investing your money over savings in the long term.
Even though your money is typically more secure in a bank or a recognized financial institution because it is not exposed to market volatility, that same money has got limited room to grow. Particularly when you factor in the effects of inflation and low savings rates.
When you invest your money, you are giving it a chance to grow in value. Generally, the longer you leave it invested, the better your chances are of achieving that. Taking a long-term view can also mean you might worry less about short-term market falls. It is also important to note that your choice of investment matters largely here too.
This long-term view can also be referred to as compound growth, Albert Einstein describes this as the eighth wonder of the world. It basically means the longer you keep your money invested, the more likely it is to grow. This is because each year you have the opportunity to achieve growth.
Let’s say you invest $5000. Any growth you get will be added to that $5000. And in the following years, any further growth you get is added to your original $5000, plus any previous growth. If you leave your investments with the aim of growing, this could happen year after year.
It might not sound like much, but over time it can help build up to a good chunk of the final value of your investments. Of course, there are no guarantees – investments can fall as well as rise in value, and you could get back less than was invested.
Let us use retirement as a case study here, when you are saving for retirement, one can say that you are investing to try and grow your money for a large pension pot as possible. Nowadays, many people are keeping their pension savings invested once they have retired, and taking money out as income to live on.
If you go down this route, your pension savings will need to cover not only your immediate spending but also the money you will need to last you through the rest of your life. You do not want to run out.
Investing rather than saving is also a way of creating ‘natural’ income. If you have a Standard Life workplace or personal pension plan, it is likely that this income will be automatically reinvested in the funds you are invested through.
Investing might help limit the effects of inflation on your money. If you need to access your money in the short term (five years or less) then leaving your money in a savings account can make sense. However, leaving it any longer than that in a savings account could mean your money could lose its value when you take inflation into account.
The effect of inflation could effectively have a negative impact on your cash savings every year. Since 2008, interest rates have been very low and, importantly, less than inflation. So, your ‘cash savings could be steadily worth less and less in today’s terms.
So, investing could be a way of giving your money the chance not only of maintaining its value but also the potential to grow in value.
If you are unsure which investments are right for you and your goals, then it is a good idea to consider getting financial advice, to help you provide tailored plans that meet your individual needs.