Today I propose to talk about how to make money work for us, after several questions about how we can save for children. If you haven’t read it yet, I recommend the first part of this article . You read? Good. Let’s recap:
How to put money aside? (1) Let’s start by not spending them. By putting them somewhere where they are hard to reach. Then (2) make it a habit to set aside money month by month – here systems that automatically transfer money from the account to savings on a certain date of the month can be helpful. Then (3) to “forget” about them so as not to be tempted to spend them, let the money work for the children, so as to bring return / profit.
Now that we’ve figured out how to save and what to save for , naturally the next question is what do we do with the money? What do we invest them in? Next I would like to discuss briefly some ideas to put money aside that I have heard and some of the “classic” options, especially when it comes to savings for children.
Currency account
It’s not necessarily an investment, it’s a way to park money in a separate account from the one we buy from. The idea is to protect ourselves from currency risk or to “speculate” on the increase in the exchange rate of that currency against the leu. Unfortunately, the account offers virtually no interest and we have a high cost of foreign exchange to buy that currency. Even if you collect money in that currency, inflation still erodes its value. It’s not ideal.
Investing in gold
Which again involves a cost for the purchase of gold and an additional cost for storage. Of course, it is not recommended to keep high values in the house in case of theft. A safe at a bank has a cost. And maybe some have the impression that gold does not devalue, but on August 18, 2012, gold was quoted at 57,059.16 USD / Kg *. It managed to exceed this threshold only in June 2020. It is not ideal.
Bitcoin / Forex
Of course, there are people who have made a lot of money with bitcoin or the Forex markets. But many more lost. They are among the most volatile things you can “invest” in (in quotes because I don’t consider them an investment, but more of a gamble). When we talk about savings for children, I do not recommend playing children’s money on pecans . It’s not ideal.
deposit
A classic low-risk savings tool. Recommended for relatively short periods of up to one year. Do not roll money in deposits for years, because there are other more effective financial instruments with which you can manage to beat inflation. If you need money faster, the interest accrued so far is lost when the deposit is liquidated. Not ideal for long-term investments.
Life insurance with savings component
There are several types of insurance here and they vary greatly from one insurer to another. Some require some of the money to go into an investment fund. They may have some higher fees or restrictions on withdrawing money. Depending on the offer and how big the investment component is and how much you put on life insurance, it can be an option.
Government securities
We are now entering a more sophisticated financial area and perhaps with less volatility. The Ministry of Finance issued several series of government securities for the population. They offer attractive interest rates, above inflation. Be careful, if you buy from the secondary market, at a higher price than the issue, the yield becomes lower. They are good investment tools with a relatively low risk. In the long run, however, there are tools that offer much better returns.
Actions
One of the oldest financial instruments, as I told you in The Story of Shares, is at the same time the one who has demonstrated over time the best long-term returns. High volatility and risk is proportional to potential return. It is recommended to diversify by buying shares of several companies from different sectors / countries, so that you do not have the risk of sector or country throughout the portfolio. You can also reduce your risk by buying shares monthly. Thus, the purchase price will be an annual average and we reduce the chances of buying at maximum and reduce the yield. If you invest for a very long time (over 10 years), the chances of losing money decrease to almost zero. By investing in the S & P500 Index anytime between 1950 and 2008, after 12 years you would have had 97% more money than the initial investment. In the 13th year you would have made a profit 99% of the time. In the 14th year you would have beenevery time on profit . Think about it, any day you would have invested between 1950 and 2006, after 14 years you would have had between 4.5% and 691% return, most likely somewhere around the average of 186% **.
But even if we invest long-term and diversify investments, stocks have a problem: it can be quite expensive to invest. A Tesla share costs almost $ 600 at the time of writing. Amazon, $ 3200 one share. Even on the domestic market, a Transgaz share costs almost 300 lei. An entire portfolio – and especially if we buy monthly – can be too expensive for most of us and that, without including trading costs or the broker account.
Investment funds
Of course, I am biased, but I consider mutual funds to be the best investment options for most people. They can be cheap to buy (even with 50 lei you can buy fund units) and you can diversify your portfolio with their help by investing in diversified funds or divide the money into several specialized funds (shares, bonds, real estate). It is easy to invest monthly with the help of the Savings Robotwho transfers money from the account on a monthly basis and buys fund units. And another advantage is that the money is managed by professionals, who also manage the risks of the sector, the country, currency risks and much more. With investment funds anyone can save in the short or long term. You don’t have to be an expert, you don’t have to have a lot of money, you don’t even have to spend a lot of time thinking about it. The money goes month by month so that we don’t spend it, they invest automatically and work for us to bring us profit / yield. And if we still need them faster, they are accessible and we do not lose if we withdraw from the amounts faster.
Of course, there are other investment ideas and options, but I think these are the main and most sought after. Of course, I recommend that you read more and document yourself as well as possible before choosing a way to put your hard-earned money aside. Be careful with your money and do not rush to choose a variant if you are not yet completely sure of your choice.
And as always, thank you for giving me your valuable time.