Source: MeDirect
Until a few months ago, interest rates on savings were historically low. A reason for many people to look at investment solutions. The expected returns for investing are simply a lot higher than the – current – savings interest. Of course, investing also has risks, because you can lose all or part of your investment. Nobody wants that. What is sensible?
A calculation
Suppose you had put EUR 10,000 in a savings account 25 years ago. Savings rates have also not stood still over the past 25 years, ranging from anything between 4% and -0.5%. So, let’s assume for this example that the average over the past 25 years has been around 2% annualized. Then the EUR 10,000 would currently be worth EUR 16,406. That is by no means a bad result, a return of 64% over 25 years.
Now we calculate what this amount would be if you invested it. We based this calculation on a basket of stocks. For this example, we’ll pick the MSCI World Index. That’s a basket of global stocks. The return would then have been 432%. So, your EUR 10,000 would have been worth EUR 43,197.
We can therefore say that investing in the long term is simply more profitable than saving.
Saving is very important
You would almost wonder why you should still save when you look at the calculation above. If you can miss your money for a long time, so be it. For short periods, saving is sometimes better because the stock markets go back and forth in the short term. An Example: If you had invested the same amount from 2000 to 2010, that same basket of shares would only be worth EUR 9,000 or 11% less. If you had saved in 2000 and had our notional average savings interest rate of 2%, you would of course have achieved a return of EUR 2,190. Especially if you can’t wait, then saving is probably smarter.
How should I start investing
Investing has risks, you can lose all or part of your investment. That is why we always recommend creating a buffer for unexpected expenses. Check the NIBUD website to see how large that buffer should be. In addition, invest with money that you have left over every month. So never invest with money that you need for your daily expenses.
Investing is fun and you can do it the way you want. If you really want to invest wisely, it would be wise to spread as much as possible. You can of course figure this out all by yourself, but if you want to make it easier for yourself, you can choose to buy an investment fund or ETF. These are products in which the spread has been incorporated. An ETF is a passive product, which means that this product follows a basket of shares (index). As a result, the costs are lower.
And how can I save best?
If you know that you can miss the money for a few years, it is much better to lock it in for the long term. You do this on a deposit where you agree with the bank that you will not touch it during that period. In return, you often receive a higher interest rate.
How do you avoid the temptation of everyday life?
It’s easy to find a a reason not to invest your money or put it in a savings account. It is therefore wise to save a fixed amount every month or to invest, so you make it easy for yourself. It also prevents you from having to actively think about it, but that it will become a standard expense, so to speak.
Disclaimer
The financial instruments discussed may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in any product, you may lose some or all the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from any investment may go down as well as up. Products may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund and ETFs (Exchange traded funds) should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370).