Should you save or invest? Finding a balance that works for you

The age-old question of whether to save or invest might have you confused. The truth is, both saving and investing can play important roles in building your financial security, so understanding their unique purposes could be key to making informed decisions.

In essence, saving prioritises stability and accessibility while investing focuses on potential growth and capital appreciation.

Knowing what to choose, how much to save or invest, and when to do it can be daunting. I’m here to help you find a balance that works for you.

Saving money may be a good idea if you need it within 5 years

Short-term goals may look different for everyone. For some, a short-term goal could be:

• Putting a deposit down on a house
• Saving for a holiday
• Buying a new car
• Saving for a home renovation.

Any of the above scenarios often require having easily accessible funds to hand, which means that saving is typically the ideal strategy. That’s largely because your money will be more readily available and have a lower risk profile compared to investing.

Remember, investing can expose your money to market fluctuations, which can lead to losses if you’re only invested for a short time frame. This could mitigate the benefits of investing and make saving the preferred option.

While saving can offer stability, it’s important to highlight that inflation can have a significant effect on the purchasing power of your money.

For example, the Office for National Statistics (ONS) states that in January 1985, the average price for a sliced loaf of bread was 39p. In January 2025, the cost is now £1.40.

If the interest you generate on your savings is lower than the rate of inflation, your money could lose its spending power over time. This means that relying solely on cash savings for long-term financial planning may not be the right move for you.

Nevertheless, it is often the ideal choice for short-term goals, where inflation doesn’t have as significant an impact.

Ways to save:

• Easy access savings accounts tend to have lower rates, but you can deposit and withdraw as you wish.
• Easy access Cash ISAs are a good option if you have a lot in savings and want to avoid paying Income Tax on the interest generated within your account.
• Regular savings accounts typically pay higher interest rates, but you can only pay small amounts into them each month.
• Fixed-term savings pay some of the highest interest rates, but your savings are locked away for a set period.

Keep in mind that an emergency fund is an important part of a financial portfolio, as it could help you weather shocks such as job loss or financial emergencies. So, before saving for other goals, consider putting your efforts into building an emergency fund if you don’t have one already, ideally with 3 to 6 months of expenses set aside in an easily accessible account.

I can help you decide which savings method makes the most sense for your financial plan, so talk to me if you’re unsure.

Invest money if you won’t need it for more than 5 to 10 years

Investing is a strategic approach to growing your wealth over the long term. By allocating your funds to assets such as stocks, bonds, and even real estate, you could potentially outpace inflation and help your money grow substantially.

However, investing comes with inherent risks, so it can help to approach investing with a long-term view. The longer you remain invested, the higher your chances are of recovering from short-term market fluctuations. This can create an averaging effect, levelling out your overall returns over an extended period.

Consider the illustration below, which demonstrates your potential returns if you were to invest £500 monthly on top of a one-off payment of £10,000. It also compares how long it would take to save the same amount (without interest earned) to show you how powerful long-term investing could be.

 

Length of investment	Your estimated investment value	How long would it take to save the equivalent amount?
10 years	£86,700	12 years and 10 months
15 years	£139,000	21 years and 6 months
20 years	£198,000	31 years and 4 months
25 years	£267,000	42 years and 10 months

 

Source: Virgin Money and Lloyds Bank

Keep in mind that the above calculations assume a balanced approach to investing, and include deductions for any charges. The value of your investment can go down as well as up.

As you can see, the longer you stay in the market, the more potential your money has to grow, which is why investing is often the preferred choice for long-term returns.

If you’re unsure when to invest, consider the following:

• Is your investing time frame longer than five years?
• Are you comfortable with a certain level of risk?
• Do you understand that markets can be volatile?
• Have you already put aside an emergency fund and other cash savings for short-term goals?

Ways to invest

There are many different types of investments, and the route you choose will depend on your risk tolerance, financial goals, and time horizon. Here are just a few options:

• Stocks and shares
• Bonds
• Funds
• Property
• Fledgling businesses.

A Stocks and Shares ISA can be a sensible first port of call for holding investments such as stocks, shares, and bonds, as in these tax-efficient investment accounts, your returns are free from Income Tax, Capital Gains Tax, and Dividend Tax.

You could also consider a General Investment Account (GIA), which isn’t as tax-efficient but offers more flexibility and variety.

Of course, you can also look into purchasing domestic or commercial property and investing in businesses. However, talk to me before taking any action, and together we can work out if it’s the right move for you.

Finding your balance and adapting to change

Realistically, there is no such thing as “the perfect balance” for everyone, as choosing whether to save or invest is a personal decision. At the end of the day, the right balance between saving and investing depends on factors unique to you, including your:

• Risk tolerance
• Financial goals
• Time horizon.

Keep in mind that it’s also not an “either-or” situation. Rather, saving and investing are more about a strategic allocation of your resources. A core part of knowing when to save and when to invest is having a clear idea of your financial goals and regularly reviewing and adjusting as your life changes.

Life events, such as marriage, children, or career changes may mean you need to revise your saving and investing strategies.

With a clear understanding of your financial goals and my help, you can create a balanced strategy that works with your unique circumstances.

Get in touch

Remember that financial planning is an ongoing journey that requires regular reviews and adjustments. For personalised financial advice, get in touch with me and let’s schedule a chat.

Email Marnel.Stafford@fosterdenovo.com or call 07305 970959 or 0207 469 2800 to find out more about how I can help you.

Please note

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

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate taxation advice, national savings products, deposit accounts and some aspects of commercial mortgages or buy to let mortgages.

Your home or property may be repossessed if you do not keep up repayments on your mortgage

A future performance forecast is not a guide to future performance and may not be repeated.