Investments and Savings – Exploring the options 

Putting money away for the future will help you get the most out of life. Savings and investments will help you achieve your goals and protect against unexpected developments – it’s much safer than relying on your credit card. To help you explore the options and what will suit you best, here’s our guide to investing and saving your money.

Investing

What is investing?

Investing is putting your money into something that you hope will increase in value over time. You can invest in all sorts of things, from property and gold and antiques! Most commonly though, people invest in the stock market via shares, bonds or funds. 

It might take years to generate a good return, but people often make more from investments than savings. But investing is more risky than saving, as stocks and shares can go down in value as well as up.

Which investment options are available to me?

There are so many different ways to invest your money, but for simplicity, we’re focusing on two popular ways to invest: funds and shares.

Investment funds

An investment fund is a financial vehicle (also known as a collective investment scheme or “CIS”) that pools money contributed by a group of individuals to invest in derivatives, fixed-income securities, shares and other financial instruments. Funds are a ready-made package of investments. Investing in a fund saves you from trying to choose individual investments. Instead, a fund gets you a mix of assets such as shares, property, government bonds and cash. 

The benefit of this approach is that you’re spreading your money across a range of investments which can make it less risky: if some investments in the fund perform badly, others could perform well.

There are two main types of fund. An active or multi-asset fund is run by a professional fund manager who picks the shares, bonds and other assets and watches them on your behalf. You pay extra for this expertise, with the idea that you’ll get better than average returns. 

A passive fund or index fund follows or tracks a certain market or index. There’s no active involvement from a fund manager, so these generally cost less in fees. You can choose how cautious or adventurous you want to be in terms of the risk.

With a fund, you can decide whether you want to aim for growth or income. If you want the size of your overall investment to keep growing for the future, this is known as accumulation. It means that any money you make stays within the fund and is reinvested. 

The other option is to take the money you generate as a regular income. This is popular with people that have retired or are nearing retirement and need to boost their pension income.

Shares

Buying shares effectively means you’re buying a small ownership stake in a company. Companies sell these shares to raise money to grow their business, and their shareholders can buy and sell their shares on the stock market at any time.

If the company is doing well, demand for its shares will increase and the share price goes up. As a shareholder, the value of your investment rises and falls with the share price.

Financial Adviser’s are unable to provide advice on the purchase or sale of individual shares. 

How much risk should I take?

When investing, you need to think about the level of ‘risk’ you will be happy with – there’s always the chance that you could lose some or all of your money.

Risk is basically how likely an investment is to go up or down. A high risk product could increase in value more quickly, giving you a bigger return, but it could also lead to a much bigger loss. 

Your attitude to risk is personal – but things to think about are:

• Your age, especially if you are nearing retirement
• How much you can afford to lose
• How long you will invest your funds for – people sometimes choose higher risk when they are investing over a longer time
• How comfortable you feel about the risk – some people find high risk investments too stressful

Investment calculators can give you an idea of the potential growth of your funds at different levels of risk.

Can I access my money if I need to?

You are more likely to get a good return on investments by leaving them in place for a number of years. But if you want to be able to access the money invested, many investment products do allow this. It’s an important thing to discuss with your financial advisor before committing to an investment plan.

How do I start investing?

Seeking financial advice will make sure you choose investment accounts that suit you and your situation. That way, you’ll be reassured that you can access your money and make changes when you need to.

Savings

Saving is a simpler approach: it’s putting money into a bank account to grow over time in line with interest rates. Whilst considered low risk, money tends to grow more slowly in a savings account, and if growth is not in line or above the rate of inflation, could result in the value of your money being lower than before.

Which options are available?

There are a few options to consider:

• Regular Savings Accounts – You open an account with a certain sum of money and it earns interest over time. Your annual tax-free Personal Savings Allowance is £1,000 in interest, (£500 for higher rate taxpayers) so most saving is tax free.
• Fixed Rate Savings Accounts – Fixed rate accounts often offer better interest rates, but you need to agree to leave your money in place for a certain number of years. 
• Cash ISAs – The interest you earn on your money is exempt from tax. You can currently save up to £20,000 per tax year in any form of ISA. An alternative to a cash ISA is an Investment ISA where your money goes into stocks and shares.

A further option is premium bonds. This is a form of savings account where the ‘interest’ paid is decided by a monthly prize draw. You buy £1 bonds, each of which has an equal chance of winning, so the more you buy, the more your chances improve. Prizes range from £25 to £1,000,000 and are awarded on a monthly basis. 

The Financial Conduct Authority do not regulate advice in relation to Premium Bonds or Cash Deposits.

How do I get started? 

As savings accounts are simpler and less risky, many people choose to compare different interest rates and criteria and open a savings account direct with a bank or building society. Just make sure that your provider is authorised by the Prudential Regulation Authority (PRA). For a wider discussion about growing your money, it’s a good idea to have a chat with a financial advisor.

How can your Adviser at First Thought Financial Services help?

As qualified financial services professionals, we have years of experience in helping people make the most of their money. We get to know every client and recommend suitable ways to achieve their financial goals. 

We have all the tips, tools and expertise to help you invest and save your money for the future. Contact us for a chat today. 

The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested. 

Tax treatment varies according to individual circumstances and is subject to change.

Past performance is no guarantee of future returns.