A regular savings plan keeps you focused on your goals and allows you to choose how you invest your money depending on your attitude to risk. You can also choose the appropriate (short or long) term and contributions based on your circumstances. Typically, a savings plan should include funds that have historically performed above the rate of inflation.
A fund can offer the diversity you need to ensure your “eggs are not all in the same basket” and can be preferable to a low-interest savings account. Historically, over the long term, funds outperform all other asset classes, including cash, bonds, property, and commodities. However, it’s wise to bear in mind that past performance of individual funds is not a guarantee of future performance.
Historically, over the long term, funds outperform all other asset classes, including cash, bonds, property, and commodities.
Committing to a regular savings plan essentially means agreeing to tying up your money for an agreed period of anywhere from five to 20 years. During that time, you make regular contributions that you agree on at the outset of the plan. It’s important to think about what matters to you and to be clear about your financial goals. Also, consider how stable (or not) your current situation really is.
Be honest with yourself: What amount can you realistically commit to every month? Do you have enough in your emergency fund to keep making regular contributions to a savings plan if you’re not working for a period of time? Think carefully about the investment type and the duration you can commit to when considering a regular savings plan.
Before investing in any long-term or regular savings plan, talk to a financial adviser who can look at your circumstances and advise accordingly. They can help ensure that your savings and investment strategy fit with your financial goals and is suited to your tolerance for risk.
The amount you can realistically save every month should always be based on your income and your expenditure. That’s why there is no hard and fast rule when it comes to a minimum amount you “must” save. It’s entirely dependent on your situation and the type of savings plan you commit to.
A good financial adviser will carry out a detailed analysis of your situation before making any recommendations on how much to contribute monthly. While there are benefits to committing to a plan, it’s important to remember that returns are market dependent — which can be volatile — and that you need to ensure you have a regular monthly salary.
This column originally ran in the April 2021 issue of Dockwalk.