When we are lucky enough to have a chunk of money then we might have a dilemma as to whether we want to save or invest it. This is actually quite a difficult decision at times, but it is worth having an idea of what the moan differences are between them so that you can make the right decision.
When you save money you will generally put it into an account with a bank or building society. You will be paid some interest on it. The amount of interest you get tends to be quite low compared with the return that you can potentially get on an investment.
The money is usually safe though and there are even laws to protect your money so even if the financial institution collapses you will be able to get all or some of the money back, depending on how much you have in there. You can also use accounts that will pay a higher interest rate. These tend to be accounts where you money has to stay in the account for a period of time. This might be a year or maybe up to five years. As the provider knows that the money will be there for a long time they will be able to invest it and therefore get a decent return which they will repay to you in higher interest. There are also accounts where you have to give notice to make a withdrawal; perhaps a month or so and these will also pay a bit more interest than an instant access account when you can withdraw the money at any time. Savers tend not to get a huge amount of interest for their money but they do get the peace of mind that they will be able to get their money back.
An investment is different because there is always a possibility that you will not get back all or any of the money that you put into it. This is because with an investment, in simple terms you are buying something with the money that you hope will increase in value. However, you have to sell it again at a time when the value is high. The problem with this is that if the value of the item goes down or it becomes worthless then you lose your money. For example, let’s say you buy a piece of artwork from a young artist who you hope will become famous later. If they do, then you could have something which is worth a fortune on your hands. However, if they do not, then you could have a canvas which is just worth the value of the canvas to someone who wants to paint over it.
Obviously, most examples are not this extreme, but there is always a risk that you may lose some of all of the money invested. However, in return for the risk, it could be possible to make a larger return compared with savings. It can be quite a difficult decision to make, especially as the chances of making a higher return are increased if you keep your money invested for longer. Therefore, you may need to tie it up for ten years at least. The is because values of investments will naturally fluctuate and to allow for this you need to keep the money in for a long time. You may also find that you can only invest in certain things if you have a large sum of money. For example, you will not be able to buy a house to invest in if you only have a small amount of money (although of course you may be able to get a buy to let mortgage which will help). You will not be able to invest in a piece of art by one of the old masters with a small amount of money but you might be able to put a small amount into shares each month.