What is Investing? (and why it’s important)

If you’re new to the world of investing, it’s natural to feel some hesitation about where to start. This might stem from a fear of making mistakes, not knowing where to begin, or even the misconception that investing is solely for the wealthy or financial experts. However, here’s a crucial truth to grasp: not investing is, in itself, a risk, especially when facing inflation and available growth opportunities.

Simply Having a Savings Account Isn’t Enough!

At its core, investing simply means allocating your funds into diverse assets – such as stocks, bonds, and investment funds – with the expectation that their value will increase over time. Instead of keeping your money in a low-interest savings account, where interest rates are often too meager to keep pace with inflation, investing allows you to potentially achieve significantly higher returns to meet your long-term goals. Whether your aim is a comfortable retirement, building wealth, or simply keeping up with the rising cost of living, investing empowers your money to grow more efficiently over the long haul.

The chances of investments yielding good returns increase the longer they grow. Therefore, you should view investing as a long-term commitment, aiming to invest your funds for at least five years.

When you buy stocks, you are purchasing a small ownership stake in a company. If the company performs well, you will make a profit. On the flip side, if its performance is poor, your investment may not grow, and you could lose a portion of the amount you invested. Stock prices are also influenced by other factors such as supply and demand, interest rates, and the overall economy.

Know Your Risk Tolerance

Individuals differ in their tolerance for risk. The first thing to understand is that no investment is entirely risk-free. You are investing your money in something you believe will increase in value, but there are no absolute guarantees.

Inflation, the continuous increase in prices over time, is one of the biggest challenges facing your savings. However, smart investing can enable your money to outpace inflation and increase its real value.

You will also be exposed to market volatility, meaning the value of your investment may fluctuate up and down, and you might receive a lower return than you invested at times. Your expected returns may also fluctuate. This is normal and expected in the world of investing, where risk and return are two sides of the same coin

Higher-risk investments tend to yield higher returns over the long term, while lower-risk investments tend to generate lower returns.

Diversification Can Reduce Risk

Diversification helps mitigate investment risks by spreading your investments across diverse assets that are expected to react differently to changing financial market conditions.

*If you are unsure about the appropriate level of risk for you, it might be beneficial to consider seeking personalized investment advice.

Our investment consultations not only help you determine your suitable risk appetite but also assist you in identifying the right time to invest and the amount you can afford.

The Cost of Not Investing

Many focus on the risks of investing, but few consider the risks of not investing. The biggest hidden cost is the lost opportunity for growth.

A common misconception is that you need a large sum to start investing. The reality is that you can begin with a modest amount, such as 50 to 100 euros per month. The most important factor is not the amount you start with, but consistency. Investing regularly over time makes a significant difference.

One thing to consider is whether you have any high-interest short-term debts, such as loans and credit cards. If so, it’s usually best to pay off your debts first before starting to invest to determine the actual amount you can save and invest.

Five Key Things to Remember:

Calculate the amount you can save and invest regularly.

Save an emergency fund covering 3 to 6 months of living expenses before you start investing.

Consider starting with small amounts and monitor the performance of your investments to understand how things work.

Be prepared not to touch your investment for at least 5 years.

Consider seeking financial advice to help you determine the appropriate options for you.

In a nutshell 