Most people who have savings have a plan for these savings.

By that, I do not mean that everybody has a particular desire to spend the money in this way or that after it has accumulated over time but rather they have decided how to 'park' the money before they need it.

The more conservative members of our community who have savings would probably leave them in a bank account. They probably do not have any real financial goals in mind when they start other than they believe it is better to save than blow all their money. Some may think of the 'rainy day' from my experience these people are savers rather than wasters. However, in periods when interest rates are kept at very low levels, this can prove to be a most unprofitable and negative course of action.

When interest rates are very low as they are now, they are less than the rate of inflation, so the loss of purchasing power on a deposit of $100,000 can be substantial in a couple of years.

The more adventurous of the conservative investors probably used fixed interest investments which generally have a higher rate of return. This can help but often the fixed interest deposits do not provide sufficient returns to compensate totally for the effects of inflation.

My friend, Bill, is such a man. He wants the better return but he does not like risk and he wants to be in control of his money rather than having a fund manager whom he does not know, look after it for him.

The more adventurous of the conservative investors will probably use managed funds. In boom times some of these funds may do quite well, but, taken on average, the returns are pretty ordinary. Personally, I find the fees are far too high and I am surprised how mediocre the returns of some of these funds really are. I am also quite amazed at how many produce zero or negative returns.

The worst course of action for anybody with savings is not to do anything.

Though the methods used as quoted above are probably next best to useless, the sensible saver will invest his money in a variety of instruments so that he can achieve a return both in income and capital growth.

In making any investment there are risks. This must never be forgotten.

Generally speaking, the higher the return, the greater the risk. This can never be stressed too much.

Every person must make the decision as to what level of risk is appropriate for them. If the savings goal is for a comfortable retirement then certain factors cannot be overlooked. The chief one is the length of time the saver has.

If there is plenty of time for the goal to be reached, then a lower level of risk can be entertained when assessing the required rate of return to reach the goal. Decisions one always has to evaluate the risk appetite for the investor. However, if the saver does not have the luxury of unlimited time, then a higher rate must be achieved if the desired goal is to be reached.

If there is no appetite for risk, then bank deposits would probably the instrument of choice. If there is unlimited time then this may suffice in bringing the savings to th required level.

If an investor is prepared to accept some level of risk, then direct share investments provide the best of both worlds, i.e. better returns with minimal risk.

I have known several people over the years with a high aversion to risk who have done nothing sensible about their investment and have seen the ravages of inflation play havoc with their savings.

In summary, if you have savings, make every effort to grow them to the desired amount. Be very careful that, over time, the purchasing power is not so reduced that what you thought an adequate sum, becomes relatively worthless. It has happened to acquaintances of mine.

What is the worst thing you can do as far as savings are concerned?

Nothing!

Doing nothing can be the most expensive mistake a saver can make. Sensible investing, with a careful balance between return and risk, can be the best decision you can make.