How to start investing?

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Investing can generate considerable financial gain for you, but it is advisable to consider a few points before starting. From setting your goal, your available budget, the period you wish to invest, to when you should sell. There are quite a few things involved. To help you with this, we have collected all the valuable information you need if you want to start investing. Below you will find an overview of the most common investment products and ways to limit the risks of investing so that you know all you need to know to get started.

Why invest?

Why start investing? Well, to get a higher return on your assets so that you can accumulate them without too much effort. We live in times of rising inflation, which means that prices are rising, and your money’s value is decreasing.

For this reason, it is a good idea to find ways to ensure that your money increases in value so that your purchasing power remains the same. Some people like to avoid risks and therefore prefer to open savings accounts to get the most out of their savings. At Aion Bank, we have different savings products to meet your needs. You can also use our savings calculator to compare our savings interest rate with those of other banks so you can see at a glance which bank offers the best return.

The current economic situation means that interest rates are relatively low, making it interesting to learn about investing. Investing is a little riskier, but it can produce an attractive return in the long term. And if you reinvest the profits earned, you can get returns on those too. This way, you get an exponential growth of your assets (the compounding effect). *

Have we sparked your interest in investing? Read more below and discover the best way to start!

How to start investing?

Before you start investing, it is advisable to consider the following:

- Define your goal

Undoubtedly, you’re dreaming of something, or you have a plan for your future that you want to work towards: a car, a house or investment property, a comfortable pension, a substantial inheritance for your children, or something completely different. Define your goal and the associated financial cost to know what you are investing for.

- Determine your investment term

Is your goal something for within the next five years, such as a wedding or a big trip? Then opt for savings. Do you have more than five years? Then start investing for a more substantial potential return. Depending upon your goal, you can work out how long you can invest or how much time you need to arrive at that final sum required for that goal. The longer the period over which you can invest, the greater the chance of a good return.

- Create a buffer

Since it is recommended to leave the money you invest untouched during the term, it is best to invest only with an amount you can spare for a while. Therefore, investing is an option when you can easily make ends meet every month and have something to put aside. In addition, you should have a savings buffer for unforeseen setbacks. This will give you financial peace of mind should your investments decrease in value for a time.

How much should you invest?

Should you start with a small amount of money or a large one? Which is best? The ideal approach depends on who you are and the amount and term you have in mind. If you want to start investing with Aion Bank, you will have to fill in a questionnaire that determines your investor profile. This profile provides more information about your attitude to return and risk. A higher return goes hand in hand with a higher risk. Fortunately, there are ways to limit these risks. More about that in the next section.

At Aion Bank, you can start investing as little as €100. We recommend exploring the investment world with a small amount to “practice”.***

Of course, you will need funds to invest. So, get into the good habit of regularly putting some money aside. All the little bits add up to a tidy sum to start investing over time.

What should you watch out for before you start investing?

To properly assess the risks of your investment, you should ask the right questions in advance:

- Do you still want to be able to access your money in the short term?

As mentioned above, investing is more interesting in the long term. In addition, with other banks you are also often bound to adhere to a certain investment period. Do you think you may not be able to keep it up? Or do you want to estimate what it would cost if something unexpected were to happen and you would need that investment money? In that case, you should know in advance about the costs and terms and conditions if you want to sell your investments earlier because these can sometimes be high.

- Are there any red flags?

Investment advisers check whether businesses are financially sound. Warning signs include the debt-to-equity ratio, reduced turnover, or fluctuating cash flow.*****

You should do the same with the institution in which you are investing. Do not solely rely on annual financial statements but also your gut feeling. Strangers who offer you investments, promise guaranteed returns, or put you under excessive pressure are suspicious. So is a lack of information. Anything that seems too good to be true usually is.******

Are you purchasing the investment through an intermediary? The person offering your investment is not always the one who is responsible for the payout. So, make sure all parties are financially sound.

- Are you investing in your own or other currencies?

If the return on your investment depends upon the evolution of another currency, there is an exchange risk involved. The exchange rate can fluctuate and be unfavourable when you want your investments to be paid out. So, think carefully about whether you want to invest in this.

- What are the costs?

Investing involves various costs for entry, exit, management, transaction, custody, etc., that can soon run into hundreds of euros. Ask your bank or intermediary for more information and keep track of everything. Or choose a bank such as Aion Bank, which does not charge costs or commission apart from the monthly subscription. This way, you can keep a close eye on your costs.

This is the risk that is beyond your control. As mentioned before, a great deal also depends on who you are and what risk profile you want to accept. Not only Aion Bank, but almost every institution where you can invest will draw up an investment profile or risk profile for you. This takes account of your financial situation, investment goal, period, and willingness to take risks.

Risk profiles are divided into a scale that ranges from defensive to neutral to offensive. In this way, the optimal balance between risk and return is calculated for you. For example, investments with strong price fluctuations may yield higher returns, while “safer” options such as bonds may yield lower returns.

Your risk profile is not set in stone. Life sometimes takes unexpected turns: your family may expand, or you might decide to go back to college or take early retirement. If your personal situation or goals change, it is useful to adjust your risk profile accordingly.

Now that you know everything about your risk profile and goals, you can start investing. But what do you want to invest in? After all, there are many options from which to choose. Below you will find an overview of the most common types of investments in Belgium.

What can you invest in?

If you are reading this article, you are probably new to investing. If so, the range of options to invest in may seem enormous. Don’t worry if you can no longer see the wood for the trees. Below you will find an overview of the most common investment options.

- Investing in bonds

The safest option for investing is through bonds. This is a kind of loan issued by the government or a company. You will receive a fixed annual interest rate. At the end of a fixed term, you will receive the initial amount plus the price return (the difference between the price at that time and at the time of purchase).*

- Investing in shares

If you want higher returns and are prepared to take more risks, it is better to invest in shares. With shares, you buy a part of the ownership of a company. So, you will also benefit if that company’s share price goes up or pays out dividends. However, if the company goes bankrupt, shares will be paid out later than bonds. In general, if share prices drop, bonds will rise, and vice-versa. Therefore, combining the two in your investment portfolio is wise for lower risk and higher returns.*******

The ratio between the two also depends on your investment period. If you can invest for a period of more than 30 years, 90% shares versus 10% bonds is recommended. If your timeframe is more like ten years, a 50% ratio is recommended.******** In general, the closer you get to retirement (often the moment when you want to access your investments), the more you want to play it safe and switch to bonds. After all, at that point, you cannot always wait for the share market to recover.

- Investing in property

Anyone who has purchased or looked for a house in recent decades probably already knows that property prices have risen steeply. Therefore, residential or commercial properties are not only interesting for personal use but also as investments. Property funds invest in immovable property. As an investor, you receive a share of a portfolio of various properties. The increase in value generates the return, and the rental income is paid out as a dividend. The advantage over buying a property yourself is that you share the costs and risks with other investors and are, therefore, not responsible for the maintenance. Another advantage is that you are not dependent on the share market.

- Investing in mutual funds

A mutual fund spreads the money of various investors in an investment portfolio. This portfolio contains different types of investments combined according to region, sector, or theme. This spread helps to absorb price fluctuations and limit the risk. Investment funds that combine portfolios on the basis of risk are called profile funds. You can also choose socially responsible companies in your fund. Socially Responsible Mutual Funds select companies based on social or environmental criteria. The fund manager selects those investments with the greatest return potential. You pay a fee for this management, but this is low compared to the time you save on figuring everything out and investing yourself.**********

- Investing in index funds

Index funds are not managed like mutual funds but automatically follow the market index. This is a selection of investments representative of the S&P 500, for example. It is a more passive way of investing than through a manager. It also costs less and often does not require a minimum starting amount.

- Investing in ETFs

The objective of ETFs or Exchange Traded Funds is to follow the index and achieve the same return as the index. For this reason, we speak of passive investment. Mutual funds are an example of active investment as they try to achieve higher returns than the index. However, they rarely achieve this. For that reason, with an ETF, you have relatively more certainty that you will achieve a return from the market.********* Because ETFs buy shares and bonds in bulk, the transaction costs can be kept low. Aion’s cost ratio for ETFs is between 0.01 and 0.25% on an annual basis, compared to 1% at other Belgian providers and 2 to 2.5% for mutual funds. ETFs are often more flexible to buy or sell than traditional funds. This makes them an easy and quick way to invest, ideal for first-time investors! Want to find out more about ETFs? Read more here.

- Investing in cryptocurrency

Investing in virtual currency sounds like an exciting and easy way to quickly earn a lot of money. However, it is still quite risky. For example, the value of cryptocurrency fluctuates greatly, with no guarantee of return. Because it is so unpredictable, it is best to invest no more than 5% of your portfolio in it. Another risk is privacy. Anyone with access to your private key can approve transactions. So, keep it safe. Although online portfolios (hot wallets) allow you to carry out transactions quickly, they are riskier because the keys are generated and saved automatically. Choose two-factor authentication and long, unique passwords. Offline paper or hardware portfolios (cold wallets) are safer and recommended for larger transactions.**********

What is the best time to sell your investments?

The objective of investing is to maximise returns, and therefore, the timing of the sale is a determining factor. It is always a bit of a gamble to know when your investments are at their best to sell again or when they are so bad that you should sell to avoid further losses.

Selling at a profit:

- You could automatically sell shares when they have risen to your target amount.

- Warren Buffett’s tactic is not to want to get the most out of them and to sell as soon as a share price suddenly starts to rise sharply — and who could know better than him? Sudden rises are often temporary and based on speculation. It is better to sell with a small profit than wait too long and see the price plummet again.

- Another good reason to sell is in the case of overvaluation: your share costs more than it is actually worth. Another indicator of overvaluation is when the company’s valuation (the future cash flows) suddenly rises by comparison to the competitors. Or when the P/E (price-to-earnings) ratio over the past 5 to 10 years has been far higher than that of the competitors.***********

Selling at a loss:

- If you see a share price dropping, there’s no need to panic just yet. But if the company you have shares in is losing market share to competitors, it is time to accept your losses and sell.

- To assess the financial situation, you should look at the annual financial statements and the quarterly figures. That way, you can react more quickly. If you notice that savings are being made on costs or staff: sell!************

Similarly, if the reason why you once bought the shares no longer applies (the company is no longer a pioneer, for example), it is time to sell.

Are you keen to start investing? Discover here how to easily open your portfolio with Aion Bank! And remember: investing involves risks. Terms and conditions apply. For more information, visit https://aion.eu/be-en/asset-management

Sources

*Investments for Beginners. (2021). Retrieved on 25 January 2022, https://www.nerdwallet.com/article/investing/investments-for-beginners

**Waarom beleggen? Retrieved on 25 January 2022, https://www.veb.net/beginnen-met-beleggen/waarom-beleggen

***7 Easy Ways To Start Investing With Little Money. (2022). Retrieved on 25 January 2022, https://www.moneyunder30.com/start-investing-with-little-money

****Waarom beleggen? (2021). Retrieved on 25 January 2022, https://www.wikifin.be/nl/sparen-en-beleggen/hoe-beleggen-en-risicospreiding/waarom-beleggen

*****Red Flag. (2021). Retrieved on 25 January 2022, https://www.investopedia.com/terms/r/redflag.asp

******5 Red Flags Every Investor Must Avoid. Retrieved on 25 January 2022, https://www.allbusiness.com/5-red-flags-every-investor-must-avoid-17544-1.html

*******Wat is het verschil tussen aandelen en obligaties? (2019). Retrieved on 25 January 2022, https://debeleggersgids.be/beleggen/obligaties/verschil-tussen-aandelen-en-obligaties/

********What Should Be Your Balance of Stocks to Bonds if Nearing Retirement? Retrieved on 25 January 2022, https://finance.zacks.com/investment-ratio-between-stocks-bonds-7787.html

*********Verschil ETF en beleggingsfonds uitgelegd. (2021). Retrieved on 25 January 2022, https://www.axento.nl/beleggen-uitleg-en-tips/verschil-etf-en-beleggingsfonds-uitgelegd/

**********Socially Responsible Mutual Funds. (2020). Retrieved on 25 January 2022, https://www.investopedia.com/articles/mutualfund/03/030503.asp

**********How to invest in cryptocurrency? (2022). Retrieved on 25 January 2022, https://investorjunkie.com/alternative-investments/investing-in-cryptocurrency/

***********Wanneer moet je aandelen verkopen? (2019). Retrieved on 25 January 2022, https://valuejagers.com/blog/wanneer-aandelen-verkopen/

************Aandelen verkopen. Waarom en wanneer? (2021). Retrieved on 25 January 2022, https://www.beleggingsinstituut.nl/beleggers-kennisbank/aandelen-verkopen-waarom-en-wanneer/

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