Source: MeDirect
Looking at the news lately, you might feel rather uneasy about investing: is it the right time to venture into something new? The world is facing many crises right now and this is reflected in the markets. We would like to explain some aspects about investing to help you take the right decision. After reading this article, you might reconsider your position, and you will see that it is not that daunting after all, even in these turbulent times.
Investing is something you do for the long term
To be clear: there are risks involved when you invest and that is a fact! There is a risk you might lose part or all your money that you invest.
The risks involved depend mostly on the type of investments you invest in. That being said, in the long run markets fluctuate and do recover after a certain amount of time as history has shown us (see the graph below). Past performance cannot predict the future, but historic data does show that in 15-year cycle markets do tend to recover despite financial crises and recessions.
Historical data of the MSCI World index
Be aware that in this calculation, inflation was not considered. On average, over the past 15 years, inflation was calculated at approximately +2% per year meaning that average prices for goods and services have risen by 2% per year. Inflation is currently still rising in the EU with some countries seeing a 10% or even higher increase.
Invest only money you can afford having tied up for long period
Before you start investing make sure you invest money which you are certain you will not be needing for long period of time. To start off with, it is a good idea to set a budget for unexpected expenses. This buffer should be easily accessible perhaps through a savings account. You can use this tool to calculate how high your buffer should be (source in Dutch: NIBUD). This way you should have enough money available for when the car breaks down, or you need a new washing machine.
Ready, set, go!
Ok, so you have setup your buffer and now you are ready to go! As overwhelming as it might be, here are a couple of thoughts from our side:
Diversify, Diversify, Diversify.
Do not out all your eggs in one basket. Instead diversify and invest in multiple companies and in multiple financial instruments. You may trade on your own, but if you are new to investing this might get a bit overwhelming. There are quite many investment products to choose from. Even for the more advanced investor, picking stocks and bonds, to create a portfolio, can be challenging.
Diversifying is made easier when investing in certain products. Mutual funds and Exchange traded funds (ETFs) – these are two product types which provide diversification. Our platform offers a wide range of these products, and we have multiple ways for you to select the specific product that may help you meet your financial goals.
Invest fixed amounts monthly
Another common dilemma is to decide when the best time is to start investing. Unfortunately, there is no way to predict the future market performance. You may wish to consider investing on a recurring basis.
If you invest a fixed amount of money every month for a long period of time, you can average out your returns because losses and/or gains will equal out.
We do hope that these tips have provided you with some insight on investing and given you the confidence to consider taking the first steps.
Disclaimer
The information given in this article is for general information purposes only and is neither intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information given is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
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 of 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 should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), 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 Service Act (Cap. 370).