EstateGuru Guide: Are you eager to make investments and start growing your money but unsure of where or how to start?
The world of investing can be daunting and opaque — you have to choose between stocks, bonds, mutual funds, commodities, real estate, art, currencies and much more. On top of the wide range of options, there’s also the fact that many of these investment opportunities have been made deliberately complicated and closed off, meaning you need to pay a middleman, usually a financial institution, to make investments on your behalf, which leaves you with less profit at the end of the day.
Another issue is the stereotypical view, again reinforced by institutions and their insistence on fairly large minimum investment amounts, that investing money for your future is only for those who are already wealthy. They simply don’t like you ‘wasting’ their time with small amounts.
In this article, we’d like to demystify the very act of investment and show you how you can set yourself on the road to financial freedom for as little as the cost of a good cup of coffee every day. Best of all, you can manage this all on your own without the need for a middleman, fees, early payout penalties or long waits to get access to your own money.
But before we dive into all of that, there’s an important question you need to answer.
Why do I want to invest?
This may seem like a silly question on the surface of it. Most people would simply answer ‘to make money’ and think that is enough. However, there is a consensus among experts which states that this sort of vague financial reason is often an impediment to investment, certainly when you are a relative newcomer.
Investment is the ultimate example of delayed gratification and, in that sense, is the polar opposite of debt. When you create debt to purchase something that you want, you are taking from your future to serve the present. When you invest money and save to purchase something you want, you are taking from the present to serve your future. On the face of it there seems to be little difference, but in reality, the difference is huge.
Let’s use an example. You decide that you simply must own a yacht. The one you like costs exactly €100 000 and you simply must have it immediately so you take out a personal loan from a bank and they generously charge only 13.5% interest on your 5-year loan. When you finally manage to repay this loan after half a decade the yacht would cost you about €138000.
Now imagine you could travel back in time to five years ago. How much would you need to invest to buy your dream yacht in the present, Well, if you could find an investment that earns 12.65% return per annum (guess where that could be?), you’d have to put away only €55 124 to buy your €100 000 yacht.
When you think in concrete terms like this it becomes much easier to stay disciplined when you invest. Whether it is your child’s education, a once in a lifetime around the world holiday, a summer house, or early retirement, when you know what you’re working towards it becomes much easier to delay your gratification.
How do I get started?
You most likely looked at that equation above and thought: ‘Yeah that’s all fine and well, but I don’t have €55 000 to invest.’
We’ve been conditioned to think that investing only makes sense when there are large amounts of money involved when in fact even small amounts are worthwhile.
One of the best ways to get started is to create your own investment subscription. You’d be surprised to see what you can do for the cost of a cup of coffee every day.
Let’s say you grab a cup of coffee on your way to work every morning and it costs €2.50. Now, we’re certainly not suggesting you give up that cup, but what if you were to match it with an investment? Five cups a week and four weeks in the month comes to €50, which may seem like a tiny amount to invest and is something most of us should be able to manage.
At a conservative interest rate of 10.91% your €50 every month will earn you €4,891.58 in interest over a ten year period, and that is on top of the principal amount of €6000 which you have saved. That’s not bad for the equivalent of a cup of coffee every weekday.
The chart below shows the approximate amounts of interest you could earn if you managed to up your investment even a little.
It’s also important to keep in mind how easily you will need access to either your entire investment or parts of it. Emergencies happen, and there’s nothing more frustrating than having money that you can’t access.
When should I start investing?
There’s only one viable answer to this question and that is right now. No matter your age or the amount you can afford to invest, the wonder of compound interest means you need to start investing immediately.
If you want a nice nest egg for your retirement, investing just €100 per month, from the age of 22 to 67, equates to approximately €1,048,000 if you earn a conservative 10% growth per year. Waiting until you’re 32 years old to start investing reduces that retirement fund to €379,000. As you can see, waiting 10 years will result in a loss of about 64% of your retirement nest egg. So the later you start, the more you need to put away.