Investing Money vs. Saving Money

Investing Money vs. Saving Money

by David Redmond on 22 Feb, 2011

It’s a question that plagues anyone with a substantial amount of money to their name. Should I invest or save? Which way you go depends on the overall financial climate, your motivations and your personal temperament.

Saving is the safe option. This is particularly true since the government introduced its guarantee. As long as you spread your money around various accounts, you should be able to ensure most, if not all, of your capital is covered by the guarantee. However, as with everything in life, with greater risk comes greater reward.

Investing money has the potential to pay much higher dividends than any form of saving. Again, this is particularly true since the financial crisis, when the base rate was lowered to 0.5%, taking high street rates with them. The move is designed partly to make borrowing cheaper, but partly to encourage people to invest and spend rather than save.

People invest for a number of reasons, profit being chief among them. As any reputable hedge fund will point out, share prices can go down as well as up, so it is by no means a sure thing. However, if you’ve got the money to spare, investing money is certainly a more preferable option to saving money if you wish to grow your capital.

It also offers the advantage of giving you more control of where your money goes. When you save money with a bank, they use it to invest, but you have no say over where those investments are made. If you use your capital as an individual, you can invest to suit your own particular wants.

For example, the government recently announced the introduction of ‘socially responsible’ ISAs to fund projects under the umbrella of the Big Society. Equally, you could invest in sustainable energy firms or technology companies like Apple. This type of investment is not necessarily the best way to grow your capital, but it can be tremendously rewarding, particularly if you invest enough to gain any sort of say in the company.

More secure investment comes in the shape of government bonds, currently experiencing a surge in popularity thanks to the volatility of the markets in the late noughties. Despite recent fears, governments fail far less frequently than companies and so bonds are seen as a relatively secure way of investing money.

Investing money brings far greater potential with it, but if you have a large amount of capital that you depend on, the best advice is to save what you need and only invest what you can afford to lose.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.