Saving or investing? What 100 euro would be worth after 60 years of investing

Financial Focus
Erasmus School of Economics

Many people find investing too risky. To invest in stocks you would need to have a lot of knowledge, which is why the Dutch save more than ever. But is investing really that scary? Mary Pieterse-Bloem, Professor of Financial Markets at Erasmus School of Economics, makes the trade-off between risk and return and explains what the best option is for our money in an RTL-Z series called 'The Secret of Investing'. 

Today, the savings interest rate is practically negligible. But what if you had been saving for the past 60 years? What would a relatively small amount of 100 euros be worth now? And how does that compare to other investments? Mary Pieterse-Bloem tried to find this out.

The result of 60 years of saving

Finding out what would have been the best option 60 years ago is not as easily said than done, and it requires reliable, independent data. In addition, the AEX only came into being in 1983, says Pieterse-Bloem. The data was therefore obtained from Statistics Netherlands, where series can be found for the early 1960s. The results show that if you had put 100 euros into a savings account in 1960, you would have had about 1500 euros this year.

The benefit of investing in bonds

Another option for your money is to invest in bonds. By doing so, you are basically investing in a very long interest rate, a piece of debt paper. So, what would you end up with today if you had invested 100 euros in a 10-year Dutch government bond in 1960, on which interest was received for 50 years? The answer to the above question is already a lot more than you would expect. The research shows that your 100 euros would now be worth around 4250 euros. The advantage of government bonds is mainly the low risk, on top of the higher interest rate in comparison to savings.

The most profitable investment

Finally, Pieterse-Bloem also looked at stocks on the Dutch market, in order to make a good comparison with the other two options. She hereby assumed that the dividend paid out by the Dutch companies would be reinvested in the same stocks. It turns out that if someone had invested 100 euros in 1960, they would have had about 30,000 euros in 2020. So, despite the large fluctuations in the market, investing your money in stocks is by far the most profitable.

Investing during uncertain times

But how are we supposed to invest during these uncertain times? Pieterse-Bloem explains that events like a pandemic are very unexpected, and even the best financial advisors cannot anticipate on events like these. In theory, every investor can insure themselves against price drops by buying put options. However, these options are expensive and will cost you even more money if the market fluctuating a lot. Therefore, if you have a large portfolio, outsourcing is a good option when you want to insure yourself against stock market risks. Nowadays, there is a huge range of investment funds which aim to achieve a positive return regardless of the market situation. Such an absolute 'return strategy' is not as profitable when prices skyrocket, but it does promise the investor stability.

The Secret of Investing

Professor
More information

The full item from Financial Focus, 31 August 2020, can be found above (in Dutch). 

Want to read more about investing in times of crises? Download the article from Elsevier, 2 September 2020, above (in Dutch).