How you benefit from investing
Building a portfolio of quality investments is one way to help you get ahead financially and achieve your long term goals.
It’s easy to think of ‘saving’ as investing. While the two often go hand in hand, they also work quite differently.
'Investing' is more than building rainy day savings
On a practical level, saving involves putting aside money today for use in the future. It’s what economists describe as ‘forgone consumption’. In other words, rather than spending all your money, you tip some into a savings account for another time.
Savings is a sensible starting point in investing because it provides the funds you need to purchase a range of different assets. However investing goes one step further, helping you achieve personal goals with three significant benefits.
The potential for healthy long term returns
While saving means setting aside part of today’s money for tomorrow, investing means putting your money to work to potentially earn a better return over the longer term. Different classes of investment assets – cash, fixed interest, property and shares – typically generate different levels of return (which is relative to the risk of the investment).
Compare these
historical returns over the past 30 years. As you can see…
‘Growth’ assets, such as shares and property, have historically had the best overall returns of all asset classes but have also had bigger peaks and troughs. As an investor, there is the potential to earn capital growth over the longer term as well as an ongoing income return (like dividends from shares or rent from a property).
‘Defensive’ assets, like fixed income and cash, may not have generated the same level of returns over time as growth assets but these returns have been less variable, with smaller peaks and troughs.