Why are you saving?

We all need to set money aside and invest for our future needs – whether to buy a home, provide a nest egg for our loved ones, or for financial security in later life. What you are saving for will help inform your investment choice and the amount of risk you choose to take with your money.

What do you want to achieve from your investments?

Depending on what you’re saving for, you can choose to invest to achieve long-term capital growth, or to generate a regular income – or a combination of the two. The key is to select the right balance to help you achieve your own individual investment objectives.

Growth: If you’re looking to protect your money from inflation or to build up a nest egg, you will need to seek out investments that can help grow your savings over time.

Income: Many types of investment make regular cash payouts, which can help if you’re looking to use your savings to supplement your income or cover regular payments.

Growth and income: Some investments can help you to produce an attractive regular income while ensuring that your savings still benefit from the potential to grow over the long term.

How much risk should you take?

All investments carry a degree of risk to your savings, so working out how much risk you can afford to take, and how much risk you are prepared to take, will help you to select the investments that may be most suitable for your needs.

When deciding how much risk you can afford to take, your time horizon – or how long you want to remain invested – is key. The longer you can invest for, the less impact short-term ups and downs will have.

Another important factor is your attitude to risk: how comfortable you are with short-term losses, and how willing you are to ride out fluctuations in the value of your investment if it means you can achieve better long-term returns.

Your time horizon: This simply means how long before you want to take your money. Investing is most effective over a longer time period.

Investments with the highest return potential, such as company shares, tend to fluctuate over short time periods, but over the longer term they have the ability to provide returns that can help you to grow your savings and protect them from the effects of inflation.

When you invest in the stock market, you should be prepared to do so for a minimum of at least five years. A longer investment horizon gives you more time to ride out the short-term bumps caused by periods of market uncertainty.

Your attitude to risk: A general rule is that the more risk you are prepared to take, the greater your potential reward could be over time. The trade-off is between stronger potential returns on the one hand and bigger ups and downs (higher volatility) on the other.

You might not be comfortable with large short-term fluctuations in the value of your investments. If the thought of seeing your savings go down in value keeps you awake at night, a lower-risk strategy might be more appropriate for you

Alternatively, you may be prepared to accept more short-term volatility in the value of your savings if it helps you to meet your investment goals.

You can invest via third party providers or by contacting a professional adviser. You should, of course, only consider investments that are right for you. If you are in any doubt about the suitability of an investment, please speak to an independent financial adviser.