ETF Academy Investing Money
Video: Investing Money
Are you interested in growing your savings? The interest rates are low and depositing money in a bank won't bring you far. There is arguably no better way to accumulate capital than investing money over long periods of time. However, to earn the best returns for the risks you take you need to invest wisely. VanEck ETF Academy is a primer for aspiring investors and breaks down key concepts and terms related to investing money.
How to invest money?
When it comes to initial guidance for investment beginners, the three golden rules are:
- Adopt a long-time horizon;
- Keep costs low.
We discuss each of these rules on the academy pages.
What does investing money mean?
Investing money means allocating capital to a company or government to make a profit or earn income. People most frequently invest in securities such as shares or bonds. Increasingly, they also invest by way of exchange-traded funds (ETFs). There’s a growing trend to invest money in a way that not only achieves a financial return, but also does environmental or social good.
Investors are no longer a privileged group
The common stereotype is that just the most affluent among us can invest, but in reality, as the barriers to investing are being broken down, investing money is getting more accessible to everybody. Nowadays, the cost of having a brokerage account is minimal and so are the transaction fees. The selection is not limited to single stocks or bonds: ETFs make it possible to invest money into a diversified investment portfolio just for a few dozens of pounds.
Why to invest money?
It’s well documented that investing money can generate significant capital accumulation for a patient investor over time. What’s known as “compound interest” can ratchet up returns year after year – If an initial investment of EUR 1000 yielded a 20% return in a single year, it would be worth EUR 1200. But if your investment again yielded 20% in the following year, your capital would not grow to EUR 1400, but to EUR 1440. Why? Because the previous year’s EUR 200 profit would also generate a return; not just the initial investment. Over longer periods individual investors can accumulate substantial capital in this fashion, so it’s important to start investing as early in life as possible.
Investors should consider risks, i.e. risk of capital loss, before investing.
Financial markets traditionally offer three types of instruments to invest money: stocks (1), bonds (2) and bank savings (3). Historically, stocks provided the highest returns, but they have also been riskier. When financial markets correct, stocks can lose significant value. Bank accounts are more stable, but with interest rates close to zero, these hardly pay any return or even cost more than they return. Under some circumstances banks can fail, leading to significant losses for savers. Historically, bonds sit between stocks and bank deposits in terms of return and risk. True to the basic rules of investing, these choices show the trade-off between risk and return. In order to achieve higher returns, one typically needs to accept a higher level of risk, and vice versa.
Learning to invest
There are many books about learning to invest – but there’s no substitute for experience. Start investing money slowly and, over time, you will become more skilled and experienced. Continue our ETF Academy course to learn more about investing.