When you invest your hard-earned money, it’s highly likely that you’re doing so with a certain goal in mind. A nest egg for the future may be high on your list of priorities, or you might just be looking for a way to grow your wealth. Whatever your reasons, having a long-term outlook when investing can help you make the most of your money.
If you want a quick win or are working towards a short-term goal, investing is unlikely to be the right choice for you. Whereas those individuals who are saving towards a significant, longstanding goal, such as buying a home, retirement or their child’s future, are much more likely to reap the benefits of adding a long-term investment to their savings strategy.
Short-term savings vs. long-term goals
While saving and investing are undoubtedly linked, they are in fact two distinct ways of nurturing your money.
With saving, you would generally put money aside for future use or emergencies where you need quick access and have a guarantee that the value won’t fall. When it’s time to withdraw, you get all that money back, plus any interest you may have earned.
If your plan is to save for a period of 5 years or less, this is short-term saving. Typically, short-term saving is used for a quick cash boost and emergencies, or for shorter term savings goals such a new car or your next holiday. The most common vehicles for short-term saving are cash savings accounts, including: regular savings accounts, fixed-rate or instant-access Cash ISAs.
Investing your money carries more risk, as you’re not guaranteed to get back everything that you put in. However, people choose to take this risk as the returns are often higher and your money can grow more quickly, when compared to the low interest rates associated with short-term savings options.
Unlike saving in a cash account, investments put your money into assets which commonly include stocks and shares, bonds, commodities and real estate. The overall aim is that these assets bring you a return on your money.
Some choose to manage their own portfolio of different types of investments, but there are also other investment products available that can help you to start working towards your long-term goals, such as pensions, Junior ISAs, Lifetime ISAs, Stocks and Shares ISAs and investment funds.
Generally speaking, long-term investing takes place over a period of five years or more. If you want to see your money grow, it’s important to have a long-term outlook when investing.
Mitigate the effects of volatility
However you choose to invest, in periods of market volatility, your investment is likely to be affected. This is where the risk comes in; your investment will fluctuate from time to time. Resisting the panic caused by poor stock market conditions and remaining invested can pay off, though.
By investing for the long-term, you give your money the opportunity to weather poor market conditions and increasing the likelihood that it will continue grow over time, despite peaks and troughs in the market.
You don’t have to be a pro
The idea of investing can often be daunting for those who are new to it. But you don’t have to be a stock-broker to invest for the long-term. In fact, investing over an extended period of time, and the products that help you do it, can make it easier to manage, no matter your level of experience.
For example, a Stocks and Shares ISA is a popular way to invest over the long-term. There is a wide range of these ISAs available: some which let you be more proactive in managing your money, some which let you choose your own level of risk and others that simply do all the hard work for you.
The chance for better returns
Historically, investments have yielded better long-term returns when compared to short-term alternatives. We’ve already mentioned that short-term savings accounts often offer comparatively low interest rates. With investing, while the risk is higher, the potential for returns over time is also higher.
In addition to this, pulling out of investments after a short period of time is also more likely to leave you out of pocket, as you’re not giving them time to grow and ride out and periods of poor market performance. Additionally, you may be subject to charges that would have been waived after a certain period of time.
Overall, the way you choose to save or invest will be determined by your own goals and circumstances. However, if you do choose to take the investing route, it’s important to have a long-term outlook in order to weather any storms in the market and give your money a real chance to grow. Whichever you choose, make sure that you do some thorough research into your options before committing and, if you’re unsure, then you can choose to speak to an independent financial adviser to help you get started.