Investing with small amounts: you don’t have to be rich
It is often thought that investing is something for rich (and old) people. However, this is hardly true these days. To invest successfully, you do not necessarily have to put aside thousands of euros per month. If you start with a few tens of euros, you are already well on your way. In fact, investing with small amounts ensures that you can learn a lot in a short time. After all, you do not have to worry about losing very large amounts on the stock market. In this blog you can read all about investing with small amounts and the possibilities with it!
Investing or saving?
It is an age-old discussion: should you invest or save with the money you have left over each month? Nowadays, however, investing seems to be gaining more and more ground. Savings interest rates are historically low, making investing an attractive option. It should be said, however, that saving is almost always safer than investing. This is because investing always involves risks, no matter how passively you approach it.
However, investing and saving can also go hand in hand. For example, in addition to a savings account at the bank, you can also open an investment account with a broker . Historically speaking, investing is almost always a lot more profitable than saving. The strategy you use does of course play a role in this. A very active investment strategy in which you use derivative products has a fairly high risk factor. You then run a high risk of losing money. However, if you opt for a passive strategy with, for example, ETFs or bonds, you run much less risk.
The investment strategy that ultimately suits you depends on a number of factors. For example, you will be able to take more risk at a young age than at an older age.
The power of investing with small amounts
Investing with small amounts not interesting? Take a look at the examples below. These examples are based on a stable average return of 7% per year. These types of returns are achieved more often on average with indices such as the S&P 500.
- If you invest €20 per month, you will have approximately €23,000 in 30 years.
- If you invest €50 per month, you will have approximately €57,000 in 30 years.
- If you invest €100 per month, you will have approximately €114,000 in 30 years.
The above examples are of course a bit too simplistic. Of course, inflation still needs to be deducted and investing almost always involves costs. However, the examples do give a good idea of the power of investing with small amounts. No matter how small the amounts may seem: as time goes by, they pile up nicely. This has to do with the operation of compound interest . In short, this means that the return is calculated each year on a higher amount, because your annual profit is added to the total amount. So the longer you wait, the more profit you make per year.
Only invest money you can afford to lose
It is never wise to invest money that you cannot afford to lose. This creates too much dependency on the money you have invested. The result is often that you make decisions that are not rational, but are purely based on emotions. There is therefore a big difference between having little money and investing small amounts. Can you afford to lose the money? Then investing is definitely worth considering. Can you not afford to lose the money, for example because you are in debt? Then first focus on building a better financial position.
Two strategies
It is a bit of a shortcut, but you could say that there are two investment strategies. Firstly, you can use a passive strategy . A passive strategy suits investors who invest for the long term. You do not achieve record profits, but you do achieve a consistent return. You achieve this by investing in investment products such as ETFs and bonds. Many passive investors buy a fixed set of investment products every month and do not look at them anymore. A passive investor does not constantly look at charts and lets the market take its course.
The passive investor is opposed to the active investor. He will actively monitor investment products, hoping that an opportunity will present itself. An active investor accepts that there is a lot of risk involved, but achieves – when things go well – very high profits. This automatically means that active investing is more for people who are looking for short-term profits. Do you want to invest actively? Then you should read up very well before you start. Things can quickly go wrong. Typical investment products for active investors are derivative products with leverage. Think of CFDs or turbos.
Active trading
You can put an active investment strategy into practice by choosing a broker that supports derivative products. These are investment products that are based on an underlying value – often a share. If you buy a derivative, such as a CFD, you do not actually buy the underlying product. You only enter into a contract to settle the price difference with an external party. The advantage is that you can use leverage (also called leverage or multiplier). Such leverage will multiply your profit by a certain factor. But be careful; your losses will also be multiplied. You can make very large profits with leverage, but you can also quickly see your money evaporate. So handle it with care.
ETF’s
A suitable investment product for passive investors is the ETF. An ETF can be seen as a basket of shares that all have something in common. For example, there are ETFs that focus purely on the technology sector. Such ETFs can be traded via various brokers. It is smart to choose an ETF that does not charge too high costs. After all, additional costs will eventually eat into your profit. Also look at the average return of an ETF. Often it is the larger ETFs that deliver the more stable returns. Think for example of an S&P 500 ETF or the well-known Vanguard All-World.
Individual shares
Of course, you don’t have to use baskets of shares that have been put together by others. Sometimes it is much more pleasant to put together a portfolio yourself. You can do this by buying individual shares every month. When you trade with smaller amounts, this can sometimes be difficult. After all, some shares cost hundreds of euros. Have you found shares that fit your budget? Then always pay extra attention to whether you are using sufficient risk diversification. A portfolio with, for example, only American shares is quite vulnerable. After all, if the American economy collapses, you will make a lot of losses. Put together a portfolio that consists of shares from different countries and sectors.
Investing small amounts: change
A trend that has been gaining ground in recent years concerns investing with change. To achieve this, an app is often used. For example, consider the well-known app Peaks. This app will round up payments that you make with your bank card to invest the difference. For example, if you spend €2.50 on a cup of coffee, the app will invest €0.50 and therefore round the amount to €3. Using such an app certainly does not have to be bad. Always investigate the conditions that are used and check the additional costs.
Social investing
Another trend that is rapidly emerging is social investing. You then directly follow investment advice from a signal provider. This can be a robot, but also a person with demonstrable investment experience. The concept of social investing is promoted by the investment platform eToro . However, always think for yourself; even successful investors regularly make losses.
Consistency
Successful investing with small amounts is achieved by maintaining a high degree of consistency. Agree with yourself when you are going to invest how much and stick to this plan. Do not withdraw money from your investment account to book a holiday and do not skip a month because you want to buy new clothes. It does not matter whether you invest a little money every week, month or year: as long as you do it consistently.
When investing, pay attention to transaction costs. The more transactions you make, the more costs you will pay. Therefore, preferably choose a monthly deposit instead of a weekly deposit. Minimizing transaction costs is something you should take into account when drawing up an investment plan.
Start as soon as possible
Are you attracted to investing small amounts? Then it is wise to start filling your investment account as soon as possible. To do this, you first need to create an account with a broker. If you are going for maximum return, it is wise to choose a broker that suits you well. Pay particular attention to matters such as transaction costs, reliability and customer service.
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