Is Your Money Losing Value?

By the end of this e-book, you will understand the difference between saving and investing, and have a clearer view of what each one is designed for:

• A clearer view of what inflation is actually costing money held in cash
• An understanding of the difference between saving and investing, and what each one is designed for
• An honest picture of every account you have and what each one is really earning
• A sense of which tax wrappers exist and what each one is designed for
• A clearer view of why investors who sell during a market fall tend to do worst over the long term

Why Saving vs Investing Matters

Savings accounts feel safe. The balance goes up each month, nothing dramatic ever happens, and for most people that is exactly why their money sits there for years earning almost nothing in real terms. £10,000 in an account paying 2% while inflation runs at 3.5% is worth £8,640 after a decade. The statement looks like a gain. In real terms, it is a slow, invisible loss.

Saving and investing are not the same thing. Cash protects money you already have. Investing aims to grow money over the long term, accepting that the value can move up and down along the way. Investing isn’t just for the rich, but the right balance depends almost entirely on when the money will be needed. Until that picture is built honestly, every other money decision is a guess.

What is the Difference Between Saving and Investing?

Saving means keeping money in cash, usually in a bank or building society account, where the balance will not fall and the interest is predictable. Investing means putting money into assets like shares, bonds or funds, where the value can rise and fall, but the long term return is typically higher. Each one is designed for a different purpose, and the right home for any pound depends on when it will be needed:

• Money needed within 3 years: typically held in cash
• Money not needed for 10+ years: typically invested
• Money in between: depends on how flexible the goal is
• Money for retirement, decades away: almost always invested
• Emergency funds: always held in cash

The wrapper around the money: ISA, pension, GIA, premium bonds, often matters more than what is inside it, because it decides how the money is taxed on the way in, while it grows, and when it comes out.

When Should You Think About Investing vs Saving?

The honest answer depends on three things: when the money will be needed, how much of it could fall in value without it changing the life you live, and how you would actually behave if you saw the value drop sharply on a statement. Cash tends to make sense for money that may be needed soon. Investing tends to be considered when the money will not be touched for years, and when the holder would be comfortable seeing it move up and down before it eventually grows. You may want to think about the balance between saving and investing if:

• You are holding more in cash than you would need to cover the next three years
• You have long term goals more than ten years away that have no plan attached to them
• Inflation has been quietly eroding the buying power of money sitting in savings
• You have not used your annual ISA or pension allowance in years

There are no right answers without knowing your situation. The questions matter more than the answers, and they are best worked through honestly, with someone qualified to talk you through the trade-offs. The value of investments can fall as well as rise, and past performance is not a reliable indicator of future results.