professional wealth management advisers

Wednesday, March 14, 2012

Savings or Investment (which do you do?)

With all of the turmoil reported in the financial media over the past couple of years, the focus has been concentrated on the assets in which people invest – and diverted from the investment process they are engaged in. To a large extent the activities of (high frequency) traders and speculators are the cause of this volatility and the media is not reporting the scenario as it applies to savers and investors.

The very definitions1 of these two words should tell us something as to how the money held for each purpose should be ‘held’. In short, savings should be held in very liquid assets with a high level of capital certainty and with little risk in relation to what will by corollary, be the low interest/ income earned. (We will return to this theme a little later.)

Investments on the other hand ‘use’ the money (it is put to work) – and so a more complex process is required to ensure that all relevant matters are considered. Professional financial planners2 work with each client to establish the factors that apply to them – and how they apply to the particular client under consideration.

One of the features that ‘savers’ and ‘investors’ have in common is that their intended timeframes are generally medium to long-term. Sure, savers may be confronted with an unexpected short-term ‘call’ on the fund but generally they hope that will not be the case. The risk of that is protected by the fact that the fund is held in very liquid assets, usually cash at bank. Investors will have their assets diversified according to their identified needs – but usually targeting medium (3 to 7 years) to long-term (more than 7 years).

Some of the key questions a prospective investment client will need to be able to answer for their financial planner include –
  • Current holdings of assets in various classes 3;
  • What debts have been incurred to acquire the above assets;
  • Are all of the assets (and the debt associated with them) for income-generating purposes;
  • What cash flow position are you in (what sources/ level of revenue; and what expenses – including personal/ lifestyle, debt servicing and any work-related): is there a surplus to work with;
  • With indicative timeframes specified, what acquisitions/ wealth accumulation is required (allowing for major costs along the way such as, children’s education; holidays; home renovations/ replacement; cars etc);
  • What is your sensitivity to investment market risks such as – income/ valuation volatility; particular asset classes such as – shares/ property/ commodities; economic and market cycles; and
  • To what extent are people who are financial dependants to be considered (children; parents; business partners).
For this discussion, investment is a process as well as an activity. [Contrast trading or speculating with investment-type assets, which can be bought and sold – directly or based on derivative products, at short notice and even repetitively. Such activity is better considered as a business (active financial transacting) rather than investment (more passive financial transacting).]

If you are a saver looking to become an investor over time; or if you are an investor seeking to ensure that you are ‘on the right track’ – call our office (on 3421 3456); or use the online Contact Us facility to arrange an obligation-free, no cost first interview with one of our experienced financial planners.

1 Definitions:

  • Savings: (noun) a fund of money accumulated (and put aside as a reserve)
  • Investments: (noun) money used to make more money – assets purchased to gain income; to increase capital, or both.

2 At Continuum Financial Planners we have a number of experienced advisers available to work through these processes with you. Go to and select an adviser to contact for your needs.

3 Refer our article on the risk characteristics of the more common asset classes – at; and what should be done with them – at

Disclaimer: The information contained in this article is general in nature and does not take into account personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek the appropriate financial advice and   read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.


lizabaker said...

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continuum fp said...

..for our Dallas readers this could be of same value. Thx for noticing though.