I want to invest my savings but have no experience. Where do I start?

It is natural to feel overwhelmed by all the information when you want to start investing your savings, especially when everybody recommends you to read 30 different things before even starting. One may get the impression that a Masters degree is a requirement to be able to grow your savings. This is a quick/short guide of the things you should consider if you are want to start investing your savings and your live in Europe.

Summary: If you’re starting out, consider investing in the Vanguard FTSE All-World ETF. This strategy is simple, affordable and has good returns. To invest in ETFs, you’ll have to sign up for a brokerage firm, a financial institution for investments. Look for a brokerage firm based in your country or one that serves clients all over Europe like DegiroInteractive BrokersTrade 212 or Trade Republic. In the rest of the article, I’ll discuss this strategy in more detail.

What is investing?

Investing is the act of buying valuable things, keeping them for a long time and eventually collecting the financial rewards. A financial reward is making a profit through selling those valuable things or receiving dividends.
There are many valuable things suitable for investing. In this article, we’ll focus on one: ownership of companies, also known as a stocks.

Investing allows us to grow our savings and protect them from the negative impact of inflation.

Investing is risky because it is uncertain: we don’t know how much we’ll gain or lose; or how long it will take us to achieve a specific outcome.  We mitigate the risk of losing money by investing over the long term (> 5 years) because, in the past, longer periods of investment are less likely to experience losses.

The annualized return for investing in a group of stocks from all over the world was ~5.2% (after inflation) for the period 1900-2019.

What to invest in?

We invest in investment funds because they are the simplest and cheapest way for non-professional investors to get the returns of investing in thousands of companies.

We invest in index (investment) funds because they give us the same returns as the total market and have extremely low fees. Most people that try to have returns higher than the market return, end up failing. The returns of the market  are good enough for most people.

Exchange Traded Funds (ETFs) are investment funds that are bought/sold on a stock exchange using a brokerage firm. Index funds in the form of ETFs are available to most people in Europe.

When investing in stocks, I prefer index funds that invest in companies of the whole/developed world. My favorite such fund is the Vanguard FTSE All-World ETF (distributingaccumulating). The iShares Core MSCI World ETF is also a great alternative. These investment funds are managed by reputable firms, are large (> 8 billion Euro in investments) and have low fees (< 0.22% p.a.).

These funds have great returns too. Below is a graph of the growth of €10,000 invested in the iShares Core MSCI World since December 1978 until November 2023 (source: Backtest).

As you can see above, the value of a stocks ETF fluctuates a lot. Some people need less risk; that is, they want their investments to fluctuate less. To reduce investment risk, you’ll need to invest a portion of your savings in bonds or cash; this also reduces returns

When picking a fund, you’ll have to choose between one that pays dividends to you (distributing) or reinvests dividends in the fund (accumulating). For most people in Europe, accumulating funds have better after tax returns.

How to invest?

You’ll need a brokerage firm to invest in ETFs. These are regulated financial institutions that give you access to the stock exchange, where you can buy/sell ETFs. There are many brokers out there and I can’t list them all in this article. It would be like trying to list all the banks in Europe. 

Generally, for beginners, I think that brokerage firms that are based in the country where you are live are better because they tend to have support in the local language and deal with tax-related bureaucracy. Alternatively, there are brokerage firms that serve clients across Europe like DegiroInteractive BrokersTrade 212 or Trade Republic. These cross-border brokerage firms tend to have lower prices than local brokerage firms.

How much to invest?

To reduce the risk of losing money, make sure that you only invest sums you won’t need for > 5/10 years. Investing in stocks is suitable for long-term saving goals like for retirement, for your children’s education, to reach a specific net worth, to grow capital you don’t immediately need, etc.

Ideally you want to make sure you invest periodically (e.g. monthly). Estimate your income and your short/medium-term expenses and invest the difference.

This is optional, but some people prefer having a financial cushion for unexpected large expenses before investing.

Next steps?

There are many useful topics that I didn’t cover in more detail in this article because this is a quick/short guide. This article has a checklist of steps you can take to start investing.

You can learn about them on my book, How to Invest in Index Fundsthe ultimate guide to give you confidence in your ability to invest. 

Disclaimer: This information is for educational and entertainment purposes only. This does not represent, in any case, specific investment, legal nor tax advice nor recommendations to purchase a particular financial product. Learn more at https://indexfundinvestor.eu/disclaimers/