Savings or shares? You decide...
We no longer keep money under our mattresses, but it seems we might as well: with the interest rates at banks approaching zero, putting money in a savings account is not paying off anymore. The darkest future scenario is that you’ll have to pay to store your savings. So has investing become the new saving?
For Mathijs van Dijk, professor of Business Administration at Rotterdam School of Management, it’s not that simple. ‘I have most of my money stored at the bank and I’m annoyed by the low interest, but shares are getting increasingly expensive as well,’ he says in this interview with Nu.nl. Besides, expectations are that the interest at banks will rise again in the coming years. ‘And a higher interest rate is often bad news for the short-term stock prices. So I’m not that inclined to start investing right now.’
Still want to invest? Here’s some helpful advice:
- Don’t be afraid to take risks
Investing involves taking risks. ‘Whether you're willing to do that depends on your character,' says Van Dijk. ‘Some people enjoy it and can handle it. If you don’t, it might not be worth those sleepless nights.’
If you’re one of the daring ones, make sure you spread your risks. ‘If you buy just a few different shares, you’re depending on just a few companies for your money. That’s not wise. I would recommend anyone without investing experience to invest in a passive index fund, because the risks are spread and the costs are usually low.’
- Don’t forget the transaction costs
Bear in mind that stock trading costs money. So even if you make some good choices, you might lose all the interest to transaction costs. Research shows that women are less ‘aggressive’ in stock exchange and thus spend less money than men. ‘It’s not that women know what the new Apple will be and men don’t. It’s just that men often think they know what the new successful company will be, start trading a lot of shares, and finally lose their money to transaction costs.’
So if you’re a man, it might be a good idea not to check the rates too often so you won’t notice all the fluctuations – that's Van Dijk's personal strategy.
- Choose 'boring' companies
‘On average, it’s better to invest in the more defensive, boring companies than the hypes. "Value stocks" are the more boring companies with a good profit, but not a great share price. The opposite are "glamour stocks", like internet companies that are not making a profit but have a very high share price.'
- Realise that it’s a matter of luck
Van Dijk started investing at the end of 2007, ‘the worst timing in fifty years.’ His shares lost half of their value after the crisis. ‘Historically speaking I could have realised that the prices were pretty high back then. But at the same time, no one saw that huge crisis coming. I could not have known that it would become this bad.’
- Beware of high expectations
Finally, literature proves that only a few people really make money out of investing, says Van Dijk. ‘You have to be careful with the expectation that if you just read the paper, you can easily make money. Because that’s just not true.’
Is investing and checking stock prices just something that makes you happy? That’s fine, of course. ‘But in that case, look at it as you would look at a hobby. A hobby that you’re willing to pay for.’
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