A key part of planning your financial future will be growing the value of your money through your investment strategy and the interest you accrue on your savings.
As a result, an important element of your decision-making will come down to the choice between investing or saving.
This decision could be likened to the one you will often face in a match after you are awarded a penalty in the attacking half. Do you kick for the corner with the opportunity for seven points, or play safe and take the three points by kicking the penalty?
In this article, discover why that is the case, and read some useful pointers that could help you decide where to put your money.
The penalty decision involves balancing risk and reward
The decision around kicking the penalty or “going for seven” is usually driven by the game situation. Unless you are close to the end of the match and the three points will take you ahead, kicking to the corner seems to be becoming increasingly common.
It gives you the chance to run a set play from the line-out that could exploit a known opposition weakness, or an unexpected one like a quick throw to the front of the line.
Even if you do not score a try, an attritional goal-line stand tends to wear down the team defending more than the attacking side. Also, potential repeated penalties against the defending team could result in not only a score, but also a yellow card for an opponent.
Against that, there is a chance that your roll of the dice could result in no returns, with a potential change in momentum as the defending side receives a psychological boost from seeing off a big threat.
The decision to kick a penalty, or opt for the more rewarding outcome of a try and conversion, boils down to taking a calculated risk for a greater return.
When it comes to managing your money, this is known as “risk v reward”.
Long-term investments are likely to provide a better return than savings
As with a kick to the corner, investing money comes with an element of risk, but offers the potential of greater rewards than simply taking the safer option.
This is because investing in shares and investment funds provides you with the opportunity to earn higher returns than by playing safe and putting your money in a savings account.
For example, data published by Lloyds Bank reveals the comparative returns from £1,000 between 2015 and 2025 if you had invested in the S&P World Index, or held it as cash in an interest-bearing savings account. These figures show that you would have had:
- £2,659.71 if you had invested your wealth in the S&P World Index
- £1,209.36 from a fixed-rate savings account.
Historically, investment markets have outperformed interest rates, and importantly, also beaten inflation, protecting the long-term purchasing power of your money.
Furthermore, by investing in shares, you can often benefit from the dividend payments made by companies to their shareholders. These can either be taken as income, or re-invested into the purchase of more shares.
Many companies pay dividends on an annual basis, which can help you boost the value of your investments in the long term.
However, it is important to appreciate that, by their very nature, markets can be volatile. Share and fund values will constantly fluctuate, because they depend on a variety of economic factors that themselves are highly variable and subject to influence from external events.
Because of this, it is important to appreciate that investing your money is a long-term endeavour. Generally, it is sensible to look to hold your investments for at least five years, allowing time for any market fluctuations to smooth out.
It is important to ensure you have an effective risk strategy
It is important to have a clear idea of what you are going to do when you do kick for the corner. While there are a variety of options available, everyone needs to be on the same page.
Likewise, you need to have a clear plan in place when you are investing.
While there is an element of risk associated with all investments, it is worth being aware that different types of investments can carry different levels of risk. For example, shares in established companies do not typically carry the same amount of risk as shares in more speculative companies, such as mineral exploration or land development.
The same applies to different market sectors and geographic regions.
As a result, you will need to assess how much risk you will be happy to accept in order to achieve the returns you need.
Spreading your investments can mitigate risk. Holding all your money in a limited number of funds or stocks runs the risk of a market upheaval overly affecting your portfolio. By investing across a series of funds and sectors, you can reduce the risk of your entire holdings falling in value at once.
Markets are cyclical, and those cycles do not occur in unison. Losses in one sector can easily be offset by growth in others, helping provide you with a steady long-term rise in the value of your wealth.
Savings are a low-risk way to grow your money
In contrast to investing, the two big advantages of “kicking the penalty” and putting your money into a savings account instead are that:
- It is secure, and you will not face the same risk of the value of your wealth fluctuating
- You know what you are going to receive in interest, especially if you opt for a fixed-rate account over a set period of time.
Additionally, you will rarely incur a charge when you put your money into a savings account, whereas investing can involve various charges such as investment management and administration.
Savings accounts can certainly be an ideal option for short-term objectives, such as saving for home improvements or a big holiday.
However, there is still an element of risk associated with interest accounts. The restricted growth potential of cash savings means that you may not reach your financial goals, and your wealth may not keep pace with the rising cost of living.
Interest-bearing accounts can be ideal for short-term savings and your emergency fund
Even during the course of a single match, your decision of what to do with a penalty opportunity is likely to vary, subject to the state of the game.
Likewise, the choice of saving or investing is not a binary decision.
For example, it is often sensible to keep some of your cash in savings, rather than solely investing all of it.
This will ensure that you always have cash on hand and will not have to sell investments at a time that could be unfavourable.
Additionally, having an emergency fund held in cash and safely set aside can help you deal with unexpected financial events. This will mean that you do not have to resort to expensive short-term borrowing.
With all your savings, it pays to shop around to ensure you get the best possible return on your wealth.
Get in touch
If you would like to speak to an experienced financial planner who understands the challenges faced by professional rugby players as you look to grow your wealth, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.