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Investments can be risky, but creating a long-term investing strategy could give greater returns than a savings account

Find the best investing product for your needs

Investments that can be made through ISAs with tax-free returns up to a certain threshold.
Choose the right pension scheme to ensure you're financially secure in retirement.
A SIPP is a pension plan where you have control and make the decisions of where to invest your pension savings.
Open a share dealing account to choose which shares you want, then buy and trade them to build your portfolio.
Investing can put your capital at risk. You may get back less than you originally invested.
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Last updated
February 28th, 2024

Why should I invest?

Over the last year, we’ve seen interest rates on savings accounts soar, especially on fixed-rate accounts which peaked at more than 6%. However, the market is now changing and we have started to see interest rates decline on savings products. Consequently, this may prompt you to look elsewhere for the best deal and delve into the world of investments.

Investing offers the potential for higher returns compared to traditional savings accounts, but it does come with risks. There is the possibility of loss of capital, but strategic investment decisions can produce significant rewards long-term.

The key is understanding and managing potential risk, so it’s important to conduct thorough research and seek guidance from financial advisors. If done correctly, investing can help to combat the effects of inflation and increase your money’s purchasing power.


The key is understanding and managing potential risk, so it’s important to conduct thorough research."

What investments can I choose from?

Investment ISA

One of the main benefits of an investment ISA is that any returns generated within the ISA, whether from interest, dividends, or capital gains, are tax-free.

This type of ISA is suitable for individuals who are looking to invest their savings in a variety of assets, such as stocks and bonds, while minimising the impact of taxes on their investment returns.

Investment ISAs are ideal for those who have long-term financial goals, such as saving for retirement, education expenses, or purchasing a home.

Share dealing

Share dealing involves buying and selling shares of publicly traded companies on the stock market. The main benefit of share dealing is the potential for capital appreciation, as the value of shares can increase over time, allowing investors to profit from their investments.

Share dealing is suitable for individuals who are comfortable with taking on some level of risk in exchange for the potential for higher returns.

Pensions

Pensions are long-term savings designed to provide income during retirement. The main benefit of pensions is that they offer tax advantages, allowing contributions to grow tax-free or with tax relief, depending on the type of pension scheme.

Additionally, many employers offer pension contributions as part of their employee benefits package, effectively boosting retirement savings. Pensions are suitable for individuals who want to ensure financial security during retirement.

SIPPs

SIPPs, or self-invested personal pensions, are a type of pension scheme that offers individuals greater control and flexibility over their retirement savings. The main benefit of SIPPs is the ability to invest in a wide range of assets and investors can tailor their pension portfolios to their specific investment goals.

SIPPs are suitable for individuals who are comfortable making their own investment decisions and want to take a more hands-on approach to managing their retirement savings.

What investments can I choose from?

Investment ISA

One of the main benefits of an investment ISA is that any returns generated within the ISA, whether from interest, dividends, or capital gains, are tax-free.

This type of ISA is suitable for individuals who are looking to invest their savings in a variety of assets, such as stocks and bonds, while minimising the impact of taxes on their investment returns.

Investment ISAs are ideal for those who have long-term financial goals, such as saving for retirement, education expenses, or purchasing a home.

Share dealing

Share dealing involves buying and selling shares of publicly traded companies on the stock market. The main benefit of share dealing is the potential for capital appreciation, as the value of shares can increase over time, allowing investors to profit from their investments.

Share dealing is suitable for individuals who are comfortable with taking on some level of risk in exchange for the potential for higher returns.

Pensions

Pensions are long-term savings designed to provide income during retirement. The main benefit of pensions is that they offer tax advantages, allowing contributions to grow tax-free or with tax relief, depending on the type of pension scheme.

Additionally, many employers offer pension contributions as part of their employee benefits package, effectively boosting retirement savings. Pensions are suitable for individuals who want to ensure financial security during retirement.

SIPPs

SIPPs, or self-invested personal pensions, are a type of pension scheme that offers individuals greater control and flexibility over their retirement savings. The main benefit of SIPPs is the ability to invest in a wide range of assets and investors can tailor their pension portfolios to their specific investment goals.

SIPPs are suitable for individuals who are comfortable making their own investment decisions and want to take a more hands-on approach to managing their retirement savings.

Investing can put your capital at risk. You may get back less than you originally invested.

What do I need to consider before investing?

Investing is a complicated process and you need to understand the risks involved before taking the plunge. Here, we look at some of the things you should consider before investing.

Your risk tolerance

Understanding your risk tolerance involves assessing both your financial ability to withstand losses and how your mindset can handle market volatility. Factors such as financial goals and income stability all play a role in determining risk tolerance.

Your timeframe

Your investment timeframe refers to how long you plan to hold your investments before needing the funds. It's an important factor in determining your investment strategy. Short-term investors may aim to profit from market fluctuations within months or a few years, often preferring assets like stocks or short-term bonds. Whereas long-term investors are more focused on boosting money over decades, allowing them to experience market volatility but still potentially benefit from the compounding of returns.

Product knowledge

It's essential that you understand the products available for investment. This includes stocks, bonds, mutual funds and more. Having a strong grasp of these products allows you to make an informed decision based on their risk and market conditions.

Investment size

Investment size refers to the amount of capital you allocate to investment opportunities. It plays an important role in determining the level of risk and potential returns. Small investments may limit exposure to certain assets, while larger investments offer greater flexibility and potential for growth.

Pros and cons of investing

Pros

Usually beat savings returns over time
Can earn an income through dividends
If you invest through your pension you get tax relief

Cons

Your investments can go up and down, which can lead to stress
If you need your money when markets are down it won’t have time to recover
More knowledge is required than for saving

What’s the difference between saving and investing?

Saving and investing are both ways of trying to make your money work harder, but there are important differences.

Saving

When you save, you deposit your money with a bank or building society, and in return they pay you interest. For instance, a bank might agree to pay you 5% of everything you set aside each year. The amount of interest is generally agreed in advance and could be either fixed or variable. 

If it’s fixed, you’ll know exactly what you’ll earn over the course of the year. Variable interest might change, for instance if the Bank of England changes its base rate. Your provider must tell you if it is putting rates up or down.

When you save, your capital is not at risk. You’ll get back all your original savings, plus any interest. However, it’s rare to find savings accounts that pay more than the rate of inflation. 

This means that over time, the cost of goods will rise more quickly than your savings and your purchasing power will be eroded. So, you need to save more than expected to meet your financial goals.

Investing

There are lots of different types of investments:

  • Stocks and shares

  • Bonds

  • Funds

  • Property

  • Government bonds

  • Fledgling businesses 

When you invest, you’re buying assets and these could be anything from stocks in Google to office buildings. The hope is that your investments will increase in value over time, so that you make a profit when you sell. 

You can also take a share of any profits the thing you’re investing in makes - known as dividends when it comes to stocks. Some investment strategies focus on this aspect, aiming to generate an income by buying shares in companies that pay dividends.

Of course, the things you buy could sometimes decrease rather than increase in value. If you sell after a stock has dropped in price, you could end up with less than you put in. 

To protect against this, most investors choose not to buy single stocks in just one company or asset, but instead to diversify across a wide range of assets. This helps to protect your portfolio from volatility. There are plenty of companies that will do this for you, either by actively picking a range of investments, or by mimicking one of the financial indexes, such as the FTSE 100.

While investments can be risky, especially in the short term, well diversified strategies typically outperform savings rates over the long term, helping to protect your money from inflationary rises.

"The hope is that your investments will increase in value over time, so that you make a profit when you sell."

Investing can put your capital at risk. You may get back less than you originally invested.

What returns can I expect?

Returns from investing can vary depending on your chosen investment, market conditions, and your individual investment strategy. Generally, investing in assets like stocks, bonds and real estate can provide potential returns ranging from modest to substantial - but this will be over a long-term period.

Remember, investing carries risks, and past performance is not indicative of future results. Therefore, you should carefully assess your risk tolerance and investment goals to make informed decisions about the expected returns.

If you would prefer a guaranteed return, then a savings account could be more suitable. Fixed-rate savings accounts offer a guaranteed interest rate so you'll know exactly how much you'll earn after the term. For example, if you deposited £5,000 into a one-year fixed-rate savings account offering 5% interest, you would earn £250 once the term ends.

Learn more about investing

Browse our guides on investing and whether there is a strategy that could suit your savings
Are stocks and shares ISAs worth it?
Are stocks and shares ISAs worth it?
What is an investment trust?
What is an investment trust?
Is it a good time to invest in stocks and shares?
Is it a good time to invest in stocks and shares?

About the author

Lucinda O'Brien
Lucinda O'Brien has spent the past 10 years writing and editing content for regional and national titles. She applies her industry knowledge to ensure readers can make confident financial decisions.

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