Investing is about buying something with the aim of benefiting from its future potential. It’s different to saving, where your money is accessible and doesn’t expose you to investment markets. The risk with saving though, is that low interest rates mean growth falls short of rising prices (inflation). While there is a risk when you invest, that you might get back less than you put in, there is more potential to make a profit on your money over time.
The most common types of investments (also known as asset classes) are:
Another type of investment are funds. You put money into a combined pot with other investors. This pot is managed by a specialist fund manager who buys shares in various companies, across different investment types, spreading your risk.
When you keep your money in savings, you won't see the value go down. But if you keep money in savings for a long period of time, rising prices (inflation) means your money may not have the same buying power when you come to spend it as it did when you put it away.
Investing isn't the same as putting your money in savings where its value can't go down. When you invest, you tie your initial outlay – sometimes referred to as your capital – to the performance of assets such as shares or bonds, with the hope that the capital will increase. As the value of the assets rises and falls, so does the value of your investment.
For many it’s about finding a balance between savings (where the risk is your savings might not keep up with rising price inflation) and investments (where your capital is at risk so you could get back less than you put in).
The table below shows you what the difference is between saving and investing with Santander.
Having some money in savings is widely accepted to be a good thing. But if you’ve already got a good savings pot, check the interest you are earning on it. How does that compare to inflation? (Inflation rates are published every month so are easy to find online.)
Ask yourself, am I missing an opportunity? Could I be making my money work harder by moving some of it into investments?
You might just see investing as an opportunity to make your money work harder for you, and that’s absolutely fine. But it can help to be clear about what you’re investing towards. Three typical approaches are:
- getting started with shorter-term targets as part of a general goal to get your finances in better shape
- aiming for a specific goal (like going on the trip of a lifetime) within a clear timescale, and
- organising your whole financial life around meeting an ambitious stretch goal (like paying off your mortgage early or having a new dream home to enjoy in later life).
You may hear financial jargon around investments, so if you don’t speak it you may find it helpful to have a financial jargon-to-plain-English dictionary. You’ll find many online, but here are some key terms.