I wish we learned many more useful life skills in school, such as how to file your own taxes, what you should get insurance for, how investing works and why that is the best way to protect your money from devaluation. I had to figure that all out myself. I did learn in school how to jigsaw Christmas decorations (had so many broken saws on the way, horrible) and how to apply sin, cos and tan. Anyway, in this blog I share my knowledge about investing that I gained by reading and comparing a lot of information. And I will tell you which type of investments I chose in the end.
I am by no means a financial advisor and this is therefore not an investment advice. I don’t get paid for this article and the links are for information purposes only and there are no affiliate links. I tell you what I do and why I do it this way.
Investing is for the long term. You must be able to spare the money for at least 10/15 years, but preferably longer. Only then will you really benefit from the interest-on-interest effect. With an average profit of 7 percent per year in the long term, it’s a good way to combat inflation. You won’t be able to do that with the interest rates you get on your savings, so your money will devalue if you leave it in a savings account.
I just want to protect my money against inflation and hope to one day be able to buy a house. That is exactly why I wished I gained my current knowledge much earlier. Hopefully, by sharing what I know, I can motivate others at an earlier point in their lives (read: wake them up to educate themselves) on this subject that is often seen as very difficult. Just go figure: had I started investing properly when I was twenty, I could easily have had 150,000 euros by now! But unfortunately that is not the case. Still, starting now is better than not starting at all, in my opinion.
How much money to invest?
It is important to set apart an amount of money every month. Working structuredly like this is a must. It makes you used to an amount that is ‘not available’ to spend and it’s easier to calculate when you’ll reach your goal. I determined the amount I was going to invest by looking at my income, my fixed costs and what I can miss after paying the bills. My income sometimes fluctuates because I have a part-time job and my own business. But in principle you can always reserve something to invest, even if it is only 50 euros per month. I have a basic amount that I invest every month and I see each month what I can spare to add. I decide the total at the beginning of the month. If you wait until the end, you can easily spend the money, as you might have guessed.
I think it is important to also view the amount I invest as a bill that I have to pay. Then it’s easier to stick to it. Many people transfer their savings back to their current account at the end of the month. You don’t do that with your already paid rent or electricity. For that reason, I also like not having my investment account with my own bank. Besides the fact that investing through the bank is more expensive, it is also more tempting to transfer the amount back, it’s easy, fast and free most often.
Save too, but for emergencies
By the way, I still have a savings account. It’s just a jar of money for acute costs, like the washing machine breaking down. I checked properly for the savings interest rates, they tend to differ more than you may expect. The major banks offer the lowest interest rates.
A good alternative is Bunq bank, for example, they have a very simple app (I like simple and minimalist, it doesn’t have to be difficult so don’t make it difficult…). And a big plus: they pay out your interest of 2.46 percent every week. This is cheaper because, especially for large amounts, you benefit from interest on interest. Something that ING, for example, does not do, in fact, they have changed it from monthly to annual payment of interest! There are probably still accounts available where the savings interest rate is slightly higher than mine. In any case, check whether it is a reliable party and read the small print, for example about deposits, (free) withdrawals and interest payments.
What I also love is the interest fund of Meesman, a fund that is similar to a savings account (you can withdraw your money anytime) and the interest rate is about 3,9 percent now. That is where I like to stall money I need when buying a house but since I have no clue when that is, I would prefer it get worth a bit more in the mean time, but also want to be able to take it out any time. The conditions are a bit different compared to a savings account as this is an investment fund, so you should read those properly before opting for this.
How much in savings do you need?
How much money should you have in savings? That varies depending on your personal situation. If you have your own home, you will of course need more money. Do you have children? Or are you your own boss? Also reasons to keep more money in the bank. The National Dutch Institute for Budget Awareness (Nibud) provides advice on this so that you can calculate what a good buffer is for your personal situation. This tool is free to use! 😊 Maybe google translate can help you enough, otherwise there might be an equivalent of this in your country.
In any case, I believe it’s important to always have the ‘emergency fund’ filled and investing money comes only after. Do you have debts? Then pay them off as soon as possible but at least before you start investing, because that is a real shame with the often very high interest rates on debts. Otherwise you’re investing in a broken piggy bank, any profit falls right through…
In the following paragraphs I will discuss different types of investing that I have considered.
Investing in index funds
I have read so much about investing that I could write a book about it all. My personal conclusion is that investing in index funds is the safest (and most understandable) option. And understandable is important, I believe. You should know what you are doing with your money. Because index funds always follow the best performing companies (it’s an index for a reason), you always invest in the ‘right’ shares. If a company performs less, it will automatically disappear and another, better performing company will take its place. So you don’t have to know which companies are performing well, nor do you have to keep an eye on your investments all the time.
Everything happens automatically and you don’t have to sell and then buy again. Many people think they know better than the market and go for short selling. It’s possible to be profitable in theory, but there is a good chance that you will ultimately make less profit in the long term and lose a lot of money, time and feel stressed about when to sell and buy. I prefer keeping things simple and going for that steady 7 percent of profit as a reward for me leaving the money in there for 10/15 years.
It is not without reason that people say; the best investor is a dead investor (someone who just lets his money grow and doesn’t keep checking the status, let’s himself get freaked out by it and/or sell and buying again, etc.). Just invest monthly and let it sit there for a long time. Historically, the market always increased in value over the longer term. It is debatable whether capitalism as we have in the West is sustainable, but that is another discussion. I think you should also look at how you should relate to the society you live in. And you can also opt for investing only in the sustainable funds, but more about that later.
Investing in individual shares
So I didn’t choose this. Investing in individual shares requires a lot of time and knowledge about all those different markets and companies and you can spread your risk much less unless you really buy dozens of different shares. You don’t have that problem when investing in index funds. If you have a lot of confidence in a certain company or startup, well, you can of course add shares of that business. But in my opinion it is less steady than index funds.
Investing in ETFs
Also an option: investing in ETFs. I had to read for a while to properly understand the difference between ETFs and index funds. ETFs and index funds track an index and both have similar costs. The main difference is that you have to buy an ETF on an exchange and buy an index fund directly from the fund provider.
I invested in ETFs at DeGiro for a while, but I found – and maybe that’s just me – their app was really unpleasant in terms of purchasing and selling, etc. It could really be much more user-friendly. After a while I decided to stop with DeGiro and continue with Meesman. There you invest in index funds and not ETFs and I find their website very pleasant.
Investing in gold
I have long considered investing in gold, that is, outside of my own jewelry. You can buy gold bars and keep them at home (doesn’t seem like a good idea to me anyway), buy gold at a bank and keep it there (fewer and fewer options) or buy money from gold sellers like GoldRepublic about which I read good reviews. There are two reasons that I haven’t done it (yet). The gold price has been very high for some time now. Given the price movements in the past (which have only risen sharply since 2018), this is not a good time to buy. At the same time, it also seems unlikely to me that the price will suddenly drop again. But how far can gold rise?! In short, I just don’t feel confident enough about it. In addition, Goldrepublic is not covered by the deposit guarantee scheme, which seems like a risk to me.
At the same time, you can of course also say: in the long term it will increase and if you simply invest the same amount every month you will make a profit in the long term. But I didn’t really see the added value compared to the index funds. There is already a wide spread. Maybe I’ll change my mind again, who knows.
The costs of investing
Investing can make you money, but also costs money. The different investment companies and platforms charge different costs. If you are going to invest, it is smart to check whether there are fixed costs (for example annual account costs) and variable costs (for example costs per transaction). With that knowledge you can compare where you will spend the least on costs. What I personally avoid are private banks such as Evi van Lanschot. Then you hand over your assets to be managed by someone else. You pay more costs for that and I think that is unnecessary if you can just follow an index. My motto is as with many things in life: do yourself what you can do yourself. This not only saves money, you also feel more ‘in control’ because you are well informed about the state of affairs. My company’s accounting, my taxes, investing: I do it all myself and know exactly where I stand. A nice feeling. PS my ca rand bike brakes get professional service, no worries. Haha.
Always report investments to the tax authorities
When I filed my taxes, I saw that some of my investments had already been passed on to the tax authorities automatically and some had not. I neatly reported what did not get through and I will dare to advise that here, as that is not investment advice but just a reminder to comply with the law: always report your investments to the tax authorities! You are obliged to do this (at least here in the Netherlands) and it is also very simple when filing your income tax return. So do it, it can save you a big fine cutting into your profit 😉.