‘A very tricky conundrum': Experts give their verdict on saving vs. investing as inflation falls

Inflation rates are starting to decrease while interest rates remain elevated, posing a challenge for investors. This situation has left many evaluating the merits of short-term savings versus long-term investing. Although higher interest rates can yield more attractive returns on savings, experts suggest that individuals may need to switch bank accounts to benefit from the best rates.

In the long run, investing has typically offered better results compared to keeping money in cash. Certain investment specialists have pointed out that over extended periods, such as 30 years, investing can significantly outperform cash savings. However, savings can be beneficial for achieving short-term financial targets.

As some individuals consider investing, they are faced with considerations about risk. Following the pandemic, there has been a noticeable shift away from high-risk investments, particularly among younger investors. Despite some young investors experiencing losses in volatile investments like meme stocks and cryptocurrencies, higher risk levels can often be more appropriate for those with a longer investment horizon. Younger investors are now frequently seen embracing prudent investment practices like focusing on long-term gains and accepting short-term market fluctuations.

Fundamental investment principles include diversification, spreading assets, and ensuring a comfortable risk level. Experts highlight the importance of establishing one’s financial priorities to make informed decisions on saving and investing. They recognize that it can be daunting for young people to juggle various financial goals such as managing debt, saving for property, contributing to a pension, and maintaining an emergency fund with limited resources.

Prioritizing goals is crucial, as is understanding that not all financial decisions have to align with traditional objectives. Experts suggest taking advantage of employer pension schemes, particularly those that match contributions, as well as exploring government savings programs when appropriate. They also note that investing can serve short-term purposes, such as funding holidays or special occasions, which can encourage individuals to save and invest with specific and motivating goals in mind.