July 1, 2021
3 min read
Investment and Life insurance
Nicholas Flaherty - Investment Strategist - FWU Invest S.A.
First of all, congrats on getting that new job! And secondly, even more congrats on getting more money! It’s not maybe a topic that we all want to talk about, but it is important nonetheless. It is even more important in the current environment, in which governments are retreating from their role as guarantors for our pensions, meaning the emphasis is increasingly placed on us to ensure our futures.
When starting to invest, the first critical point to consider is ‘how long will invest my money for’? When you are still young and starting to save for retirement, the answer is a ‘long time’, usually around 30 to 35 years. The next question is ‘which asset class should I invest in’? Asset classes are essentially the ‘types’ of instruments you can choose and to simplify slightly, you have the choice between three: stocks, bonds and cash. In terms of achieving long-term returns, the stock market is the best place to be – invested wisely stocks have returned 8 to 10% per annum. To boil it down, if you still have more than 15 years left until retirement and are investing for the long-term, you will want to seriously think about getting exposure to the stock market.
Next question, how exactly do you get that exposure? You have several options here, but they essentially boil down to two choices: do it yourself or have someone help you. If you are more of the ‘do it myself’ type of person, the best advice is the following: do an Internet search in your country for ‘online brokerage’, which will provide you with a list of companies offering ‘brokerage’ services (a place where you can buy and sell financial instruments).
Usually, these firms are associated with larger banks, but make sure the firm is reputable. The best way to do this is to perform some research – looking at reviews for example – but also by having a conversation with them and checking with your regulator. Then, you need to find specific financial instruments you want to buy. And in general, you want to keep the number of instruments to a minimum, to limit the amount of times you need to buy each time you invest. For getting exposure to the stock market, this means searching for instruments called ‘global equities’, which should be readily available on the brokerage website. Every month, then, you take your surplus and invest it in this instrument.
If all of this sounds daunting and complicated, you also have the choice of having professionals help you. There are, for example, firms offering ‘robo advisor’ solutions, general retirement solutions to insurance type policies (as FWU does). What all these services have in common is that they make the whole process easier for you – they ‘automate’ investing. This means, for example, if you decide to start investing 100 EUR a month, this amount is automatically taken and placed into the financial markets for you, instead of you having to do it yourself. When finding an investment partner, however, it is critical to ensure that they actually have expertise in investing. This means asking for performance statistics, for a track record and it means ensuring they do the investing ‘in-house’ – many providers ‘outsource’ the investing, which in turn means they have less control and usually also that costs are higher.
So, to sum up, given you have a higher salary now and a higher surplus a month, investing has become even more important. The smartest way to approach it is to ask how long you want to invest and if it is for retirement – if it is, then the stock market is the place to be. You can get access with a ‘brokerage’, if you are a ‘do it yourself’ type or it means going with a professional, but make sure to check their performance and ensure they invest your money themselves.