se en false false Default

Investing Money

Your Essential Guide to Making Informed Financial Decisions

Investing Money

Investing is not just about making money, it’s a way to secure your financial future and achieve your lifetime goals. Whether you're a novice investor or looking to sharpen your investment skills, understanding the basics is essential. This guide will walk you through the fundamentals of investing, from the golden rules of diversification and long-term planning to the importance of keeping costs low. By the end, you’ll have a solid foundation for making informed decisions that progress your financial objectives.

Investing Money


Are you interested in growing your savings? Interest rates are falling so depositing money in a bank won't get you far. An effective way to grow your capital is investing in financial markets for the medium to long term periods of time. However, you need to invest wisely. The VanEck ETF Academy is a primer for aspiring investors where we explain key concepts and terms related to investing money.

How to Invest Money?

Master the Three Golden Rules for Smart Investing

How to Invest Money?


When starting your investment journey, it's crucial to follow time-tested principles that help you navigate the complexities of financial markets. Let's dive into three essential rules for investors:

  • Diversify
  • Adopt a Long Time Horizon
  • Keep Costs Low

Don’t put all your eggs in one basket. That’s because negative news about a company is often a surprise and sends its stock price lower. Even the most experienced investors get caught out. But investing in a diversified basket of assets spreads the risk. As diversified investment vehicles, in Europe UCITS ETFs are based on this principle.

Note that while investing in just a few stocks may concentrate rewards, it also concentrates risk. The charts depicting Nvidia and Paypal’s stock prices illustrate this. The third chart shows how a diversified ETF smooths out price volatility.


Cherry Picking: Concentration of Rewards


NVIDIA Daily Adjusted Closed Price USD

Source: Bloomberg.

Cherry Picking: Concentration of Risks


PayPal Daily Adjusted Closed Price USD

Source: Bloomberg.


Diversified Portfolio: Mitigate Risks and Reduce Volatility


This is for illustrative purposes only. Investing is subject to risk, including the possible loss of principal. Past performance does not predict future returns.

The Dutch domiciled ETFs use a gross reinvestment index as opposed to many other ETFs and investment funds that use a net reinvestment index.

Source: VanEck.

The longer people invest for the less likely it is that they will lose money in the stock market. That’s assuming investors stick to their long-term goals rather than trading in and out of the market depending on short-term fluctuations.


Don’t Panic while Investing

Patience is Key in Investing

3-year performance chart of the VanEck Multi-Asset Growth Allocation UCITS ETF.
On the left, the COVID-19 market crash lasted from February 2020 to March 2020, showing a sharp decline.
On the right, we can see the recovery beginning in April 2020, with a steady upward trend continuing through late 2021.
The Dutch domiciled ETFs use a gross reinvestment index as opposed to many other ETFs and investment funds that use a net reinvestment index.
Source: VanEck.
This is for illustrative purposes only. Investing is subject to risk, including the possible loss of principal. Past performance does not predict future returns

Investors face a growing array of investment solutions, each with different characteristics. Costs are an important factor to consider when choosing the right investment strategy, as they can greatly impact returns. A seemingly small annual fee difference between two investment funds can significantly affect their respective returns as time goes by.

Here is a graph showing the effect of different levels of fees (0.75%, 1.75%, and 3.0%) on the growth of a $5,000 investment over 50 years, with an assumed annual return of 7.3% (*Adjusted for inflation, the 50-year average stock market return S&P 500, including dividends).


Source: VanEck calculations.

This graph illustrates how the compounding cost of fees can significantly impact long-term investment growth.

  • 0.75% fee: The investment grows to approximately $110,665.04.
  • 1.75% fee: The investment grows to approximately $69,014.48.
  • 3.0% fee: The investment grows to approximately $38,005.69.

What Does Investing Mean?


Unveiling the History and Evolution of Financial Markets


Investing has a rich history that dates back thousands of years. From ancient civilizations to modern financial markets, the journey of investing has shaped the way we grow and protect our wealth today.

CIRCA 1700 BC

Code of Hammurabi

6TH CENTURY BC

First Coinage by the Lydians

1397

Establishment of Banking by the Medici Family

1494

Establishment of the double-entry accounting system

1602

Establishment of the Amsterdam Stock Exchange

1694

Founding of the Bank of England

1720

South Sea Bubble and Mississippi Bubble

1773

Formation of the London Stock Exchange (LSE)

1792

Formation of the New York Stock Exchange (NYSE)

1913

Establishment of the Federal Reserve

1929

Black Tuesday

1955

VanEck launches first Int. Equity mutual fund

1971

Nixon shock: convertibility of the dollar to gold

1993

First ETF Launched

2008

Global Financial Crisis

2009

Introduction of Bitcoin

2020

COVID-19 March Crash

Investing money involves allocating capital to a company or government to make a profit or earn income. The history of investing is both long and fascinating, as people have always grappled with the challenge of generating returns on their capital. The earliest traces of investment practices date back to the Code of Hammurabi around 1700 BC, which laid down laws for the provision of land as collateral for investment in projects. Significant milestones in the evolution of investment include the establishment of the Amsterdam Stock Exchange in 1602 by the Dutch East India Company, marking the creation of the first organized exchange, and the inception of the first known pension fund by the Presbyterian Church in the 18th century to support retired ministers.

Investing, however, goes beyond generating returns for individuals. It plays a crucial role in driving societal progress. By providing capital to entrepreneurs with innovative ideas, investors fund projects that may otherwise not happen. This not only creates value for investors but also fosters the development of new goods and services that benefit society. Through investment, society gains access to advances that improve quality of life, create jobs, and spur economic growth.

Nowadays, financial markets are an integral part of society and people frequently invest in securities such as shares or bonds. The fixed-income and equity markets are the largest market in the world but there is a vast group of alternative asset classes like private equity, private credit, commodities and real estate. Increasingly, investors also buy exchange-traded funds (ETFs). As we will see in the next Academy pages, these are easy-to-trade and transparent investment funds that facilitate investment in a diversified basket of securities. There’s also a growing trend to invest money in a way that not only achieves a financial return, but also delivers environmental and social benefits.

  • Investing is No Longer Just for the Privileged

The common stereotype suggests that investing is reserved only for the wealthy, but investing is becoming accessible to everyone. Today, the barriers to entry are lower than ever, with minimal costs associated with opening a brokerage account and reduced transaction fees. Investors are no longer limited to purchasing individual stocks or bonds. Exchange-traded funds (ETFs) offer a way to build a diversified investment portfolio with a relatively small initial investment, making sophisticated investing strategies available to a broader audience.

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 limited initial investment.

Why Invest Money?

Preserve Your Wealth and Grow It Over Time

Investing isn't just about growing your money—it's about protecting it from the erosion of inflation and making your money work for you over the long haul. Here’s why investing is crucial for anyone looking to secure their financial future.

Adjusted Inflation since 1914

$100 in 1914, adjusted for Inflation

Source: US Bureau of Labor Statistics.

When $100 is equivalent to $3,145.40 in 2024, that means that the "real value" of a single U.S. dollar decreases over time. In fact, since 1914 the dollar has lost 97% of its original value. In other words, a dollar will pay for far fewer items at the store.


The Long-Term Impact of Inflation


Impact of Inflation on Purchasing Power

* Consumer Price Index for All Urban Consumers: Purchasing Power of the Consumer Dollar in U.S. City Average, Index 1982-1984=100, Monthly, Not Seasonally Adjusted.

Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis.

The graph from the Federal Reserve Bank of St. Louis tracks the purchasing power of the U.S. dollar from 1913 to today, using 1983 as the base year (set at 100). Over time, the line trends downward, showing that the same amount of money buys less and less, in fact, by 2024, the dollar's purchasing power has fallen to around 32 on the index. This means that what you could buy for $100 in 1983 would cost over three times as much today.


Capital Preservation

Capital Preservation

Those who are hesitant to invest should be aware that not doing so may allow inflation to erode their wealth over time. Inflation diminishes the purchasing power of money, meaning that the same amount of dollars (or euros) will buy fewer goods and services in the future. Historically, the US has experienced significant inflationary pressures, as illustrated in the chart below, as have other major developed economies.

YoY US Inflation Rate

Source: US Bureau of Labor Statistics.

Central banks typically target an inflation rate of around 2%, with rates above this threshold considered detrimental. Investing helps to counteract the effects of inflation, preserving and potentially growing your capital.

Hence, if capital is left sitting in an unproductive way, without generating any return, this represents a significant risk for savers.

Compound Interest

Furthermore, investing money can lead to substantial capital accumulation for patient investors over time, thanks to the power of compound interest. Compound interest works by generating returns not only on the initial investment but also on the accumulated profits from previous periods. For example, if an initial investment of €1,000 yields a 10% return in the first year, it would grow to €1,100. In the following year, if the investment again yields 10%, your capital would not simply grow to €1,200. Instead, it would increase to €1,210 because the previous year's €100 profit also earns a return. This concept, often attributed to Albert Einstein as the "eighth wonder of the world" demonstrates how investing early and allowing interest to compound can lead to significant wealth accumulation over time. We illustrate this with an example: a $100 investment in the S&P 500 index of US shares in 1928, assuming full reinvestment of dividends, would have grown substantially, highlighting the transformative power of compounding over the long term.

The Importance of Dividends in Investing

The Importance of Dividends in Investing

Unlock the Potential of Reinvesting for Long-Term Gains

Returns from Dividends

Dividends play a crucial role in investing. Total returns on an investment consist of both price appreciation and dividend income. Reinvesting dividends can significantly enhance long-term growth, as demonstrated by the chart below.

Growth of $100 Invested in the S&P 500 Since 1928

Source: Bloomberg. Total returns with full reinvestment of dividends. 1928 – 2023.
Investors should consider risks, i.e. risk of capital loss, before investing.

Exploring Your Investment Options

  • Stocks, Bonds and Bank Savings – Which is Right for You?

Investors have a variety of options to choose from, each with its own risk and return profile. Understanding the differences between these options is key to building a balanced and diversified portfolio.

Financial markets have traditionally offered retail investors three types of investment instruments: stocks, bonds and bank savings. Historically, stocks have provided the highest returns but come with greater risk. During market downturns, stocks can experience substantial losses. Bank accounts, on the other hand, offer stability but often yield minimal returns, especially in low-interest-rate environments. In some cases, banks can fail, posing a risk to depositors' savings. Bonds generally fall between stocks and bank deposits in terms of risk and return. Government bonds are typically considered safer than corporate bonds but offer lower returns. Corporate bonds carry higher risk but potentially offer higher returns. These investment options illustrate the fundamental trade-off between risk and return: higher returns usually require accepting higher risk, and vice versa.

Since 1928, these are the average geometric returns of the S&P 500, one of the best known equity indices, US 10-year treasury bonds and corporate bonds with an investment grade credit rating of Baa.

Exploring Your Investment Options

Historical Average Annual Returns on Stocks and Bonds

Source: NYU Stern. Geometric Average Returns 1928 – 2023.

1
Investing Money
2
Diversification
Your Academy Progress – 0% completed