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Turning your dreams into reality – why saving is worth your interest
Spoiler: your money works harder than you do
Saving and dreaming often go hand in hand. And that’s a good thing. Every one of us is dreaming of something. Maybe you’re dreaming of a holiday trip to Bali, a home of your own where you can paint the walls any colour you like or even taking a sabbatical one day to try your hand at something completely new.
When you have a clear savings goal, saving feels much more meaningful. At times, saving can feel boring – especially if you’re still far from reaching your goal. But it helps to think of it this way: money itself doesn’t make life great but it gives you the opportunity to do a lot of great things. That’s when saving and investing start to feel interesting!
Can money really grow on its own?
Almost! The effect of compounding can make your money grow without you having to do anything. It’s a bit like binge-watching a Netflix series – one episode leads to the next and suddenly you’ve watched the whole season. When you invest successfully, your investment generates returns. If your investment performs well again the following year, you earn returns not only on your original investment but also on the returns you earned the year before. Year by year, this effect becomes stronger.
For example, if you invest 100 euros a month for 25 years in an instrument assumed to return an average of 7% per year*, your investment could grow to around 78,000 euros. You would have invested 30,000 euros of your own money but thanks to the effect of compounding, you’d have about 48,000 euros more.
That’s why simply saving money in a bank account may not be enough. When inflation pushes prices up year after year and interest on savings accounts is close to zero, your money slowly loses its purchasing power. By investing, you can aim for returns that beat inflation.
Keep in mind that all investments involve costs – whether it’s fund fees, trading costs or other charges. The value of investments fluctuates with market conditions, regardless of the investment product. Past performance can provide guidance but it does not guarantee future returns. Over the long term, regular saving and investing offer better opportunities for positive returns.
Sound good? Let’s look at how you can get started.
*Historically, the equity markets have delivered an average annual return of around 7%. It’s good to remember that the value of your investments may rise or fall. In some years you get a high return on your investments and in some years you make a loss. However, in the long term the average return is typically positive.
From dreams to action – taking your first steps into investing
When you start investing, keep at least these three things in mind: understand your financial situation, think about how much risk you’re willing to take and make your first investment. Let’s go through them one by one.
1. One plus one equals a savings buffer
Getting started: how much money do you need?
Before diving into the world of investing, it’s worth taking a look at your own bank account. Investing starts with good everyday money management. Before you begin investing, it’s a good idea to set aside a savings buffer covering a couple of months’ net income for unexpected situations. This helps you prepare for surprises and gives your finances flexibility in the short term.
Saving up a buffer doesn’t necessarily mean you have to put investing on hold. Over time, investment funds offer a better expected return than a savings account, and long-term investing in a fund can help turn your future goals into reality. For example, you could save 20 euros a month, split between a savings account and a fund, which would give you both security and the opportunity for growth.
2. Mild or spicy?
It’s okay to be both bold and cautious
There’s no single “right” level of risk in investing – only what’s right for you. So think carefully about what you’re comfortable with.
A more cautious investor tends to choose steadier options, such as fixed income funds or equity funds focused on large companies and accepts lower returns in exchange for lower risk.
A bolder investor, on the other hand, is willing to take on more risk in the hope of higher returns and is more comfortable with fluctuations in the value of their investments.
What matters most is that the level of risk in your portfolio suits your financial situation and your ability to tolerate risk. When your investments are sized and balanced correctly, you can sleep soundly at night – regardless of whether your portfolio is “mild” or “spicy”. Most investors fall somewhere in between. You might start cautiously and grow bolder as you become more experienced – or the other way around! In investing, there’s often a happy medium.
3. Start your journey
Your first investment – it really is that easy
Making your first investment can feel intimidating but it’s actually surprisingly simple. You can start with funds, shares or other exchange-traded products. One popular option is to invest in a fund through a monthly savings plan. Think of investing as part of your everyday routine. Before you start, review your income and expenses and consider what amount you could comfortably save.
Don’t stress about making the perfect choice – the most important thing is to get started. You can always adjust your strategy as you gain more experience. Investing is a long-term commitment, and one of the best ways to work towards your goals is to create an investment plan. Not sure how? Don’t worry – in the final lecture of the Portfolio Collective’s first term we’ll guide you through creating your own investment plan step by step.
Your dream investments
The world of investing offers countless possibilities. If you’re just getting started, it’s often a good idea to begin by exploring investment funds, shares or exchange-traded funds (ETFs). Each of these options suits different situations and goals.
And remember: there’s no single “right” way to invest. Some people prefer running, others hit the gym – and both can get into great shape. The same applies to investing. You can start with one type of investment and broaden your portfolio as you gain more experience. The most important thing is to take the first step! Take a closer look at the different options and choose the approach that feels right for you.
Funds – a safe way to start investing
Funds are a great way for beginners to get started with investing. Professional fund managers make the investment decisions for you, and with a single investment you can spread your money across many different assets. Funds are typically divided into equity funds, fixed income funds, balanced funds and alternative funds. In actively managed funds, the fund manager aims to outperform the market. Passive index funds, on the other hand, track a selected benchmark index automatically. Index funds are usually lower-cost and are well suited to long-term monthly saving.
Shares – choose the companies you want to invest in
Shares offer the potential for higher returns but they require more active involvement and follow-up than investing in funds. As a shareholder, you own a piece of a listed company and take part in both its successes and its setbacks. Shares may suit you if you want to make your own investment decisions and are willing to follow the markets and make changes to your portfolio when needed.
ETFs – flexibility from the stock exchange
Exchange-traded funds, or ETFs, combine the simplicity of funds with the flexibility of shares. Many ETFs track a selected index and offer broad diversification at a low cost. One key idea behind indices is their self-correcting nature: companies that perform well gain a larger weight in the index, while weaker performers gradually fade and may be dropped altogether. Like traditional investment funds, ETFs can also be well suited to long-term investing without the need to constantly follow the markets.
Important information about investing
This is an advertisement. The information provided on this website is intended as general product information only and does not constitute investment advice or recommendations. Past performance is not a guarantee of future results. The value of investment products may increase or decrease due to market movements, and it is not certain that you will get back the entire amount you invested. Before making any investment decisions, you should read the relevant prospectus and key investor information documents for more details about the investment product.