It’s often said that balance is key to life, and this is just as true in financial planning as it is in any other domain.
You may naturally lean towards caution and short-term security, which could mean you favour cash savings. Or you may be more comfortable with volatility and focus on long-term growth through investing, even if that involves taking on more risk.
Saving and investing each serve different purposes within your financial plan, but both have their place. The key is finding the right balance between the two based on your goals, time horizon, and attitude to risk.
Read on to explore how to strike a balance between saving and investing that works for you.
Cash savings can be great for short-term goals
Cash savings often get a bad reputation in investment discussions, largely because they typically don’t deliver the same long-term returns as the stock market. While that’s generally true, cash still plays an important role in a well-balanced financial plan.
Unlike investments, returns on cash are predictable, and any funds you hold in an FSCS-recognised account are protected up to £120,000.
So, while investments can fluctuate in value, sometimes significantly in the short term, cash provides certainty. You know what you have, and it won’t fall in value due to market movements.
However, this security comes with a trade-off. Over time, inflation can erode the real value of cash, particularly if interest rates fail to keep pace. This means that while your balance may remain stable or grow slightly with interest, its purchasing power may decline.
For instance, a report by Fidelity found that the average interest on easy-access cash accounts in 2025 was under 2%, and inflation ended the year on 3.4%. As a result, UK savers lost an estimated £17.6 billion in real value over the course of the year.
Because of the potential to make real-term losses, cash is generally best suited to short-term needs. This might include building an emergency fund or holding money for a large purchase within the next year or two.
When deciding how much to hold in cash, consider your personal circumstances. As a rough idea, many people aim to keep three to six months’ salary as an emergency fund. You should also factor in any upcoming costs, such as school fees or a property purchase, where having stable funds is key.
When saving cash, it’s a good idea to keep as much as you can in a Cash ISA, as any interest you earn will be tax free.
A financial planner can help you determine the right level of cash for your situation, ensuring it supports your short-term needs while allowing the rest of your wealth to work effectively over the long term.
Investments can help you build your wealth over long time horizons
Some people can be wary of investing and may view it as risky or something of a gamble. But while it’s true that investment returns are never guaranteed, history shows that markets have delivered strong returns over the long term and have typically been more effective than cash at keeping pace with inflation.
Indeed, research by Schroders found that between 1923 and 2023, both cash and stocks in the US had roughly a 60% chance of beating inflation over a single month. However, as the time horizon extends, the difference becomes more pronounced. Over five years, stocks beat inflation 78% of the time compared to 54% for cash. Over 20 years, stocks beat inflation 100% of the time, while cash did so just 65% of the time.
Of course, volatility is part of investing. Market downturns can be uncomfortable and may tempt investors to sell in order to limit losses.
However, the same research from Schroders found that following every major market downturn between 1877 and 2008, exiting the market would typically have been the worst course of action. Markets have historically recovered more quickly than cash and selling during a downturn can lock in losses and reduce the chance of benefiting from any recovery.
As such, investments are generally best suited to long-term goals, such as retirement planning or building wealth for future generations. For shorter-term needs, where certainty and security are more important than growth, holding cash may be the more suitable option.
A financial planner can help you balance your savings and investments
It’s important to stress that the right balance between savings and investments will look different for everyone. Your personal circumstances, time horizon, and financial goals will ultimately determine what is best for you.
If you don’t yet have an emergency fund or enough set aside for your short-term goals, it’s usually a good idea to prioritise building these before committing money to long-term investments.
On the other hand, if you already have sufficient cash to cover emergencies and planned expenses, you may want to consider allocating more of your wealth to investments to support longer-term growth.
It’s also worth remembering that not all investments carry the same level of risk. You might choose to allocate some of your portfolio to lower-risk investments for medium-term goals (such as over three to five years), while using higher-risk investments for longer-term goals where there is more time to ride out market fluctuations. As you move closer to your goals, you can gradually shift these investments into lower-risk funds and, eventually, into cash.
Ultimately, the aim is to strike a balance between meeting your immediate needs and working towards your long-term objectives, ensuring your overall strategy reflects both.
Get in touch
Our team of independent financial advisers in Lewes is here to help you structure your savings and investments effectively, and adjust your plan over time as your circumstances and goals evolve.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
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.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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.
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