Sitting at home bored because of the corona crisis, and a savings rate that is close to zero are causing many people to start investing. The recent fluctuations in the stock market show the restlessness among investors. Is it still smart to invest your savings in shares? According to Mary Pieterse-Bloem, Professor of financial markets at Erasmus School of Economics and Global Head of Fixed Income at ABN Amro, yes. 'But only if you can spare the money for at least five years,' she says in an article from de Volkskrant.
An accessible market
There is an enormous influx of new investors who want to benefit from the constantly rising share prices. The number of investing households rose by 17% last year to 1.75 million. Investing has become very accessible, Pieterse-Bloem says. Anyone can buy shares on the Internet, and the information is widely available. Products such as active investment funds and Exchange Traded Funds (ETFs), funds that follow an index, make risk spreading easier. In addition, the market is better protected by regulations since the 2008 crisis.
Technology makes accessing the stock market very easy. Yet the current situation is different, Pieterse-Bloem says. Unlike in the late 1990s, inflation is now higher than interest rates. 'So while you're already getting no interest on your savings, it's also melting away. It becomes worth less.' As a result, people prefer to spend money rather than leave it in the bank: 'Money has to roll', Pieterse-Bloem says.
Unpredictable
Pieterse-Bloem expects more new investors to join in next year. ‘If one sheep crosses the river, more will follow. Because if all your friends have shares, you want to start too.’ Pieterse-Bloem does point out that the trend is very dependent on the outside world. ‘This movement can suddenly stop when the stock market takes a dive.’
So is it actually smart to invest your savings in shares? Yes, Pieterse-Bloem says. ‘But only the amount of money that you can afford to miss for at least five years.’ She emphasises that the markets can be extremely unpredictable. 'If the prices drop when just when you need your money, you’ll lose the profit you made.'
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The full article from de Volkskrant, 28 January 2021, can be downloaded above (in Dutch).