Occasionally, I go out for drinks with some friends from my martial arts club. Sometimes we get side-tracked into talking about more serious topics. Such a time was two weeks ago on an after-training-drink-Friday. We ended up getting into personal finance.
Specifically, we talked about saving for a home, a car or just saving. During this chat with my friends, I realized how little most know or even care about investing and that is unfortunate because they are missing out on a good return on investment (in the long-run).
At first, we talked about what the best amount was to save before going to the banks to get a mortgage. I personally thought as high as 50% was something to strive for but I realize that it’s nice in theory, but in practice, for most, it means about 30K or closer to the average of 64%. Although I am not even close myself at the moment, I’m looking into a mortgage.
Getting that initial amount was interesting to talk about since in our group we had someone that moved twice before they got their current house, one other couple moved to their own house immediately, while two couples just bought their own home after renting for a few years. It’s interesting to hear the different ways all of them got enough saved for their first, second or even third home. It varied from just watching the little expenses cause they got extra from their parents to lowering or cutting the requirements they had for their ‘dream’ house.
It also showed that “saving enough” for -in this case, a mortgage- varied from couple to couple.
All of them had one thing in common though, they all considered owning a house as the only way to get a better return than a (regular) savings account. It didn’t even cross their minds they could get more than `losing not as much´.
Putting your money to work
Putting your money in a savings account is something well ingrained in the Belgian brain. It comes back every year through headlines such as ‘Recordbedrag op Belgische spaarboekjes’ [Record amount on Belgian savings accounts] in 2018, or ‘Alweer nieuw recordbedrag op Belgische spaarboekjes’ [again a new record amount on Belgian savings accounts] in 2015. Even in times of insignificant interest rates (0.11% with a lot of larger banks such as ING, KBC, Belfius, and Fortis) most Belgians just keep it on a savings account or don’t even bother to move it [Knack (Dutch)] [De Tijd (Dutch)].
Part is used for a (new) home, but even people who already own a house and have some money saved never consider investing, which is a shame. When I mentioned `investing´ after the first round of drinks, most gave one of these reasons: “I don’t know enough about”, “I don’t have the time to read all that boring stuff”, “it’s dangerous”, or just, “I hate banks”.
It was then that I realized how uncommon it is to consider investing as an interesting way to put your money to work and getting more than the bare minimum, i.e., 0.11% (big banks) to ~1% (online banks).
I quickly rattled on about how easy it was: you put in a small initial effort to set everything up with an online broker/bank, deposit a relatively small amount (a few thousand euros) and you are ready to go. There are a significant amount of (Belgian/Dutch) resources online that can help you and yet, all of them besides one were reluctant to look into it and rather kept complaining about how little they got from their savings account.
I’m preaching to the choir here since you wouldn’t be here if you weren’t the least bit interested in investing. Talking to my friends I realize they never really heard the same mantra over and over. Put your hard earned money in a “safe” savings account and afterward in your own house. As a result, the majority of Belgians has their own home (a solid 72%).
I’m not saying you shouldn’t save for your own place to call home. Especially thanks to the government benefit it’s a good way to ‘invest’ your money. Heck, I’m looking into a first home as well. I’m now getting the last few thousand euros to reach at least 20% of my target mortgage. The difference is, that this is after I already invested a decent amount to get a higher return than a regular savings account. This is the exact opposite of what most do.
What I find unfortunate is that most don’t even consider investing some money. It really is a missed opportunity. In the long run (15+ years) returns will average around 6% incl. inflation which is well above the average housing index of 2.4%.
Talking some sense
This brings me to what I said in the beginning. People are missing out on a very nice Return on Investment (RoI) by not thinking about investing in the stock market. This is disappointing because as my talk with my friends showed, most aspire to get more out of their money.
That’s why I try to bring up `investing´ from time to time. It’s my way to help others to try and educate themselves in the basics of investing, i.e. by understanding the following concepts:
- Supply & demand
- What are and how do stocks work?
- (Mutual and/or index) funds?
I also point out that they should ask themselves the following questions to figure out what kind of investor they are:
- What is your investment horizon and what kind of risk can you tolerate?
- Can you live with the fact you will not see the money for the next couple of years (maybe even decades)?
- Do you plan to invest periodically the moment you start? After an initial deposit of say 500 euro, will you deposit every month a certain amount?
The above items and questions are not exhaustive nor do I want to claim to know it all by pointing out the above.
What I do wish to be, is an advocate of smart and correct investing to improve your personal finance.