A well-considered savings and investment strategy can help you to achieve both your financial and lifestyle goals. Before you start making plans it is important to understand the difference between saving and investing.

For the purposes of this article, saving is defined as putting money aside for the short term into products such as a savings account with a bank or building society. This money is for use on everyday spending or as an emergency fund. Investing is defined as putting money away for the longer term into a financial product such as a Stocks and Shares ISA or investment bond, in the hope that over time it will grow in value or generate an income.

Defining your goals will help you to understand which savings vehicle may be right for you.

• What do you want or need from your investments?
• Do you want to generate capital or create an income; when do you hope to access the money?
• Are you willing to take an element of risk in the hope of achieving a higher return?

Generally the sooner you start saving or investing, the better chance you have of achieving the results you want. Be realistic about what you can afford to put aside for your investments; always keep sufficient funds for any known expenditure and as a buffer in case of an emergency.

How to get started

1. Goals

Be clear about what you’re investing for; your goal might be to enhance your current lifestyle, plan for a family or to fund your retirement. Whatever the reason, understanding why you are investing, and in particular your timeframes, is very important and will help you to decide whether a savings or investment option is right for you. Can you leave your money tied up for five or more years, or will you need it in 12 months’ time? You should consider these types of questions to make sure you’re clear on what your goals are.

2. What can you afford?

Before you start investing, always make sure that you can afford your essential living costs, as well as any debts you may have. Once you have those essentials covered, look at what you spend your money on, as you may be able to identify areas where you can save which could provide you with additional disposable income. It makes sense to build up a reserve of savings that can be used in the case of an emergency, such as losing a job or an unexpected illness which may prevent you from working. It is important to cover these essentials before you consider investing.

3. Investment Risk

Think about how much risk you feel comfortable taking with your money. Risk is an important part of assessing the prospects of an investment. Generally speaking the more risk you are prepared to take the higher returns you may be able to achieve, however, you may also risk greater fluctuations and loss. The trick is to strike a balance between your personal attitude to risk, your investment goals and time frames, your personal circumstances and how much you can afford to lose.

Always consider your other financial commitments when deciding how much risk to take. If you don’t want to or can’t take any risk with your money, then investing may not be for you right now.

Investing is generally most appropriate for medium and long-term goals (at least five years), so if your goals mean you would need access to your money before that, you might want to consider more short-term savings options instead.

4. Timescale

As a general rule, the longer your money is invested, the better the opportunity it has to grow in value. In addition ‘compounding’ means that you could see growth on growth, which over the longer term could make a significant difference to the value of your investments.

You should always be aware that investments can fall as well as increase in value, so you should only ever invest what you can afford to lose.

5. What you’ll get back

The final value of your investments will depend on three main factors: how much you pay in, how your investments perform, and how long you are invested for. Generally speaking, the longer you can keep your money invested, the more you're likely to get back. This should be balanced with the understanding that investments don’t always give you back the amount you originally invested. Make sure you plan in regular reviews of your investments to ensure you remain aligned to your goals, and to make sure you can still afford to continue to invest.

6. Mix it up

Putting all of your money in one type of investment can be a risky strategy. You can help reduce that risk by spreading your money across a mixture of different investment types; this is called ‘diversifying’. Most people choose from four main types of investment, or “asset classes”, which are grouped according to characteristics they have in common.
The most common asset classes are considered to be:

Cash – this could include current accounts, savings, Premium Bonds and other National Saving and Investments (NS&I) products. These are considered to be “low” risk, but you can still lose money over time if inflation is higher than interest rates paid, as the buying power of your money reduces.

Fixed Interest Securities – also known as bonds, these are essentially fixed term loans to a company or Government in the form of a Corporate Bond, Government Gilt, overseas bond or local authority bond. They are considered to be relatively “low” risk.

Shares - also known as ‘equities’ – are part ownership of a company. Risk levels vary.

Property – this can include residential or commercial property, buy-to-lets, and investments in property companies or funds. Risk levels vary.

Investments can be affected by many different factors, such as economics, interest rates, politics, conflicts, even weather events. Something that may have a positive impact on one investment can have a negative impact on another, meaning when one rises, another may fall.

Before committing to anything, always seek advice to ensure that your investments suit your individual circumstances and risk tolerance.

7. Be tax-efficient

Tax is never a one-size-fits-all; everyone will have different circumstances and situations which could affect their tax situation. However, there are several valuable allowances and tax reliefs which you may benefit from, such as Individual Savings Accounts (ISAs) and pensions, so ensure that you have all of the relevant information you need before you decide where to invest. If you are unsure, always seek advice to help identify what is right for you.

8. Review, review, review

Probably one of the most important elements of investing is ensuring that you make time to review your investments, to check that they remain on track to meet your goals and continue to meet your risk tolerance. Regular reviews also mean that you can make any adjustments that are necessary to reflect changes in your needs or personal circumstances.

Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content was accurate at the time of writing, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.

The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested.

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