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Whether you are a saver or investor is an interesting and important question because in the long run it could make a major difference to your lifestyle. To determine if you are a saver or investor let\u2019s look at the characteristics of the two categories.<\/p>\n
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Almost by definition the money you put in bank accounts, Cash Management Trusts or Term Deposits are\u00a0short-term savings. You may use these to save for a short-term goal like a holiday or home deposit. It\u2019s not targeted at a long-term goal, like using superannuation to save for your retirement, for instance.<\/p>\n<\/li>\n
Your savings are\u00a0accessible. You can go to the bank (or your laptop) and get your money back pretty much immediately.<\/p>\n<\/li>\n
The\u00a0returns are low.\u00a0Back in the day (well actually, a long way back in the day), you could get nice returns on your cash. \u00a0But low interest rates and low deposit rates have become the order of the day, and it doesn\u2019t seem as though things are going to change any time soon. In fact, the Reserve Bank of Australia Governor Philip Lowe has said that interest rates are likely to stay low for an extended period.1<\/sup><\/p>\n A quick search of the latest 12-month Fixed Term deposits shows you\u2019ll struggle to get more than 1% on your money.2<\/sup>\u00a0Outside of special short-term offers, your average savings account return would be even lower, especially after you take inflation into account.\u00a0<\/p>\n<\/li>\n<\/ul>\n As you can see from the above, there are a range of reasons we save. Sometimes it\u2019s to accumulate cash towards a bigger purchase (like a holiday). That\u2019s often a sensible alternative to credit card borrowing.<\/p>\n Sometimes it\u2019s for security. Financial experts suggest having a rainy-day fund equivalent to around six months of your salary.3<\/sup>\u00a0Coincidentally, that\u2019s the time it can take to find a new job. Given the current unemployment rate, there\u2019s a lot of smart savers who\u2019ll be glad they put money away for the day when the Covid-19 virus rained down on our heads. Investing\u00a0is more typically a\u00a0long-term pursuit. It can last for decades \u2013 think superannuation or investing in shares or residential property. Most financial planners wouldn\u2019t recommend the average investor buy\u00a0shares\u00a0or managed funds if their timeframe was less than five years.4<\/sup><\/p>\n<\/li>\n Invested money is\u00a0less accessible. Lots of investment choices either lock your money away (such as super) or take months or even years to turn into a profit (such as a house). While you can almost always sell shares and managed funds instantly, the volatility of the stock market means \u2018parking\u2019 cash in shares is usually a bad idea.<\/p>\n If you\u2019re looking for your share investments to pay for a large, unexpected bill, you could find you have less to take out than you thought. A good rule of thumb with shares is: don\u2019t rely on them for short-term cash, they\u2019re for long-term growth.\u00a0<\/p>\n<\/li>\nWhy be a saver?<\/h3>\n
\u00a0<\/p>\nSo, what does an investor look like?<\/h4>\n
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