Have you ever considered whether you’re a natural risk-taker or prefer a more cautious approach to life?
When it comes to your finances, this often translates into a preference for saving or investing. If you prioritise security and certainty, you might favour cash savings. Whereas if you’re more comfortable with risk, you may focus on building long-term growth through investing.
But while saving and investing may seem like opposing forces, the reality is that both play an important role in a successful financial plan. The key is not choosing one over the other but finding the right balance between the two.
Read on to find out how financial planning can help you strike a balance that works for you.
Savings can provide stability in the short term, but may lose real value over the long term
The key benefit of cash savings is that the value won’t fluctuate, and you know exactly what you have available when you need it.
This makes cash particularly useful for your short-term goals. Whether it’s building an emergency fund, covering planned expenses, or setting money aside for an upcoming purchase, it’s a good idea to have readily accessible and stable funds to cover your needs.
However, this stability can come at a cost.
Over time, inflation can erode the real value of cash if interest rates don’t keep pace. This means that while the value of your money may stay the same or increase with interest, its real-term value or “purchasing power” may fall, meaning the same amount will buy less.
Indeed, a report in Fidelity found that the average interest on easy-access cash accounts in 2025 was under 2%, while inflation ended the year on 3.4%. As a result, the report estimates UK savers lost a total of £17.6 billion in real value over the year.
So, while it’s important to hold some cash savings, holding too much in cash can limit your growth and purchasing power over time.
As such, it’s a good idea to hold cash for:
- An emergency fund, perhaps worth somewhere between three and six months of your salary
- Day-to-day expenses
- Upcoming costs, which may only be a year or two away, where you know exactly how much you’ll need.
Holding cash beyond these needs increases the chance that more of your wealth will lose real value over time.
Investments can offer growth over the long term, but may experience volatility along the way
Investing offers the potential for significantly higher returns than savings over long time horizons, but your investments may see ups and downs in value along the way.
Because of this, investments are generally best suited to your long-term objectives, such as retirement planning or building wealth for future generations. With these goals, there is typically time to ride out fluctuations and capture the market’s long-term trend towards growth.
Indeed, over long time horizons, the market has historically had considerably stronger odds than cash savings of beating inflation, meaning your money will grow in real value.
Analysis by Schroders shows that between 1923 and 2023, in the US, stocks outpaced inflation in 70% of one-year periods, compared to 58% for cash. Over a 10-year horizon, the success rate for stocks rose to 87%, while cash achieved this 55% of the time. Over 20 years, stocks beat inflation 100% of the time, whereas cash did so just 65% of the time.
That said, volatility is an unavoidable part of investing. The same analysis found that, between 1971 and 2023, double-digit declines occurred in a majority of years on the MSCI World Index.
So, while markets have historically delivered strong, inflation-beating returns over the long term, those returns are rarely smooth.
As such, investments are generally better suited to long-term goals, where you have time to overcome market volatility, rather than for short-term needs where stability and immediate access to funds are more important.
Finding the right balance depends on your goals and time horizons
There is no one-size-fits-all answer to balancing savings and investments. The right approach will depend on your personal circumstances, goals, and time horizons.
If you don’t yet have an emergency fund, it’s a good idea to prioritise building one using cash. This provides a financial safety net and helps ensure you have money ready should something unpredictable happen. It’s also important to consider any planned expenses that may require cash.
Once you’ve covered these more immediate needs, you may want to explore allocating more of your wealth to investments. And remember that not all investments carry the same level of risk, so you can still take a more cautious approach while giving your money better long-term growth potential than cash savings.
Ultimately, successful financial planning is about aligning your money with your goals. Cash provides stability and flexibility in the short term, while investments offer the potential for long-term growth. A well-balanced plan considers your life and goals holistically, and makes use of both savings and investments according to your needs and time horizons.
Get in touch
A financial planner can help you assess your current position, structure your savings and investments appropriately, and adjust your strategy over time.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
