Stocks and shares v cold, hard cash: should I save or invest?

Maximising the value of your money means finding the best places to keep it, from top performing savings accounts to stock market investments. The process can seem complex and at times stressful, but it will leave you better prepared for whatever lies ahead.

Setting specific financial goals and aligning them with your life goals is the first step to getting the best out of your money. For example, you might want to save for your child’s wedding or help them with the cost of buying a house. You might be planning to retire early or buying a second home. Having identified your goals, you need to create a plan for achieving them.

Ramin Nakisa, cofounder of PensionCraft, teaches people how to invest well for themselves.

“If you have money you won’t need for the next 10 years, then investing it in the stock market would make sense for many people,” he says. “But if you need that money within five years, you’d be mad to put it into the stock market because it is so volatile over the short term. You need to divide your financial requirements into periods of time and from there, work out the best places for your money.”

Cash savings should form part of any financial plan. Easy access to money for general expenses and any unexpected rainy-day costs is important. An effective way to save cash is through a cash Isa (individual savings account), which is designed to protect your savings from income tax. There are plenty to choose from, however, the best cash Isa rate for you will depend on how much money you have to put away, when you will need the money back, and your savings goal.

Choosing an account with a good rate to ensure your savings will earn as much interest as possible is key – although some accounts that offer higher rates impose tighter restrictions on when and how you can access your money. Investment platform Trading 212 recently launched a new cash Isa, with a 5.1% variable AER , outperforming many traditional savings accounts and other cash Isas, and offering easy access, either online or via the Trading 212 app.

However, cash has its limitations. If your savings interest rate is lower than inflation, the value and purchasing power of your pot, whether that’s in an Isa or a traditional savings account, will decrease over time. For your long-term financial goals, you should consider investing in the stock market to help your money grow over time. However, this requires understanding the risks.

“There are two aspects of investment risk to consider,” says Nakisa. “The first is your risk appetite or your emotional capacity for loss. Would the prospect of your investments losing 20% of their value stop you from sleeping at night? If so, you don’t want to take on too much risk, even if it would help you financially. The second is your risk capacity; your economic ability to take a loss without it reducing your quality of life. This will depend on how much you have saved as well as any other sources of income you might have, in which case you might want to take more risk with your investments.”

He suggests that two funds should be enough to manage an entire investment portfolio: a riskier global equity fund, which can be bought relatively cheaply, as fees are currently low, and a safe fund, for example, UK government bonds, or a money market fund, which are considered very safe types of investment.

People often see investing in stock markets as complicated, but that is not necessarily the case. The key lies in educating yourself, and there are many online sources that can provide the fundamentals for those new to investing and dispel many of the myths.

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“Once you’ve understood the basic principles, it’s a case of finding an inexpensive platform, choosing two funds, and then leaving them alone and not fiddling with them,” says Nakisa. “It’s as simple as that.”

Already renowned for pioneering zero-commission* ( Other fees may apply.) investing in the UK, Trading 212 is a good choice for people who are new to the stock market and looking for low fees. It also appeals to seasoned investors thanks to the broad range of investments to choose from. To date, the company has more than 3m Lifetime funded accounts globally.

Whatever you decide to do with your money, there will always be circumstances that are unique to you as an individual, so it’s important to understand what they are as best as you can and factor them into your strategy.

“You must find what works best for you,” says Nakisa. “Try things out for yourself and find your own path. There’s nothing wrong with looking at what other people are doing but never copy someone blindly. Understand the risks, understand the returns, and be a long-term investor, because that is most likely to lead to success.”

Visit the Trading 212 website for more detailed information on how to open a Trading 212 Cash ISA

_{Seek independent investment advice before entering into any financial transaction. When investing, your capital is at risk.}

^{* Other fees may apply.}