Investing vs saving.

What makes investing different from saving?

A savings account (like our Westpac Bonus Saver), means your money is available any time, it's reasonably low-risk and you might earn some interest on your savings. Saving is perfect for a rainy-day fund or for the short-term. You put away a bit and it sits quietly as cash in a bank account, ready for you to access when you need it. You know exactly how much money is in your savings account and it won't go down as a result of market volatility.

Investing, on the other hand, is a way to build your wealth over the longer term. It is riskier than saving - as the balance can go up and down. But it also has the potential to grow your money much faster than you could achieve by saving alone. Instead of sitting in a bank account waiting for you, your money is invested into assets that can make more money.

Different types of investments

While all savings accounts are simply 'cash in the bank', there's an almost endless number of options for investment. For New Zealanders starting out in investing, the most common types of investment are property and shares. Other types of investment include cash, bonds, commodities and currency.

If you have a KiwiSaver account, you are already an investor. Your KiwiSaver account is not a savings account, it's an investment in a managed fund. Your contributions go into a managed fund which invests in a wide range of asset types, including cash, shares and property.¹ Managed funds are a way to spread your risk across shares and other types of assets, and they are a hands-off investment.

Investing in property could mean buying a house, for instance, and renting it out to tenants. Your money goes to buy the house and pay any expenses that aren't covered by the rent. Buying a rental property is a much more hands-on investment than a managed fund, because you're responsible for all the costs and making sure you're meeting the regulations.

Shares and property are just two examples of investments, and a managed fund is just one way you can choose to invest. To find out what might work for you, email the Wealth Office Team for guidance on your individual situation.

Balancing savings with investments

Savings and investments have different roles to play in your finances.

Having a rainy-day savings account is a way to manage unexpected expenses without needing to borrow money. If you lose your job or your car needs repairing, for instance, savings can be there to provide a buffer. You know exactly how much money will be in your account and you can access it immediately.

Once you're accumulating money in your savings account beyond what you need in an emergency or in case of a job loss, it may be time to think about investing the additional money. Over the long term, investments should grow your money much faster than you could save up. If you need your money in a hurry, some types of investment may mean you can't access your money quickly, and the value of your money may be lower than you expect.

Ideally, you should have some savings for emergencies and some investments for the future.

Once again, everyone's approach to investing needs to suit their own circumstances. Contact a Financial Adviser about what could work best for you.