How do you actually make your money grow?
Have more money without lifting a finger: it may sound too good to be true, but it’s perfectly possible nowadays if you make the right investments – so start believing!
By investing in equities or bonds, you’re effectively giving your money to companies or countries so they can fund their own projects. In return, they’ll give you dividends (from equities) or coupons (from bonds). And if the company does well, its share price will increase too. Jackpot!
It’ll come as no surprise that people with serious amounts of money invest a much higher proportion of their wealth than the average. That means their money grows disproportionately and they get disproportionately richer.
But you can still do a lot with your money, even with a smaller budget. The important thing is that you do invest and that you invest on a regular basis. In the next section, we’ll take a look at how you should be investing.
By investing in equities or bonds, you’re effectively giving your money to companies or countries so they can fund their own projects. In return, they’ll give you dividends (from equities) or coupons (from bonds). And if the company does well, its share price will increase too. Jackpot!
It’ll come as no surprise that people with serious amounts of money invest a much higher proportion of their wealth than the average. That means their money grows disproportionately and they get disproportionately richer.
But you can still do a lot with your money, even with a smaller budget. The important thing is that you do invest and that you invest on a regular basis. In the next section, we’ll take a look at how you should be investing.
Don’t let your money sit there gathering dust in a savings account; think about how much of it you could be investing!
Saving is not the same as investing
Before you set out to make your fortune, you need to take a long, hard look at your finances and get everything in order. Once you’ve worked out how much you can save, you can move on to step 2: learning how to save. Start by setting aside a certain amount every month to add to your savings pot. But don’t pat yourself on the back just yet, because you know what’s coming next, don’t you? That’s right, step 3: Don’t let your money sit there gathering dust in a savings account; think about how much of it you could be investing! If you just leave your savings lying around in an account, you’ll receive very little interest on your money – maybe none at all. That means that your money actually loses value over time, because inflation will be higher than the interest rate on your account. Remember, inflation is the reason why goods become more and more expensive and why the same amount of money buys you less and less over time.
A cunning plan to make your money grow
If you try to invest without a plan, you’re essentially flying blind. Before you start building your portfolio, ask yourself these four simple questions:
- Why do you want to invest? Are you looking to make enough money to go on the holiday of a lifetime, or is financial independence the goal?
- How long do you plan to invest for? Are you thinking a few years at most, or are you in it for the long haul (i.e. a decade or more)?
- How much do you have to invest? Think about what you’ll have to work with: once a month, every month.
- What level of risk are you willing/able to take on? The longer your investment horizon is, the more risk you’ll be able to take on. But you must feel comfortable doing so.
So many questions, so many answers
Question 1: Your investment objective
First, you should always ask yourself what your investment objective is. Do you want to make enough money to go on holiday in a few years, or are you aiming for better quality of life in the long term? These are both perfectly reasonable goals, and both will have an effect on how you set up your portfolio.
Question 2: Your investment horizon
Your investment horizon is determined by your investment objective. If the aim is to pay for a holiday, your investment horizon might be limited to a few years; if your goal is long-term accumulation of wealth, your investment horizon could easily stretch to 10 years or more.
Question 3: Your investment amount
You might already have some money saved up that you’d like to invest. This can be added to the regular savings contributions that you’ve already budgeted for and plan to invest going forward (either in part or the whole lot).
Question 4: Your risk appetite
Now for the final question: How much risk can and do you want to take on? As a rule of thumb, the longer our investment horizon is, the more risk we can take on, as we’ll have enough time to ride out any short-term fluctuations in the financial markets. But even if you can take on more risk, you still need to ask yourself whether you really want to.
By answering all these questions, you can give yourself a blueprint for building your portfolio.
First, you should always ask yourself what your investment objective is. Do you want to make enough money to go on holiday in a few years, or are you aiming for better quality of life in the long term? These are both perfectly reasonable goals, and both will have an effect on how you set up your portfolio.
Question 2: Your investment horizon
Your investment horizon is determined by your investment objective. If the aim is to pay for a holiday, your investment horizon might be limited to a few years; if your goal is long-term accumulation of wealth, your investment horizon could easily stretch to 10 years or more.
Question 3: Your investment amount
You might already have some money saved up that you’d like to invest. This can be added to the regular savings contributions that you’ve already budgeted for and plan to invest going forward (either in part or the whole lot).
Question 4: Your risk appetite
Now for the final question: How much risk can and do you want to take on? As a rule of thumb, the longer our investment horizon is, the more risk we can take on, as we’ll have enough time to ride out any short-term fluctuations in the financial markets. But even if you can take on more risk, you still need to ask yourself whether you really want to.
By answering all these questions, you can give yourself a blueprint for building your portfolio.
You’ve done your homework – time to invest
Let’s assume that, based on your answers, you want to invest for the long term and are willing to take on more risk. You don’t have any extra savings to draw on, but you can set aside 200 CHF to invest every month.
If you were looking at a medium level of risk, you’d invest half your savings in equities or equity ETFs; with a high level of risk, you’d put all your monthly savings here. Your risk profile is somewhere in between (moderate, but not completely risk-free), so you invest 75% of your savings in equities or equity ETFs. You hold the remaining 25% in cash or put it in a bond ETF or precious metals ETF.
This is the strategy you follow every month when you invest the 200 CHF you’ve set aside. To make sure your investment kitty is always full, you could consider a savings plan. If you want to know how to set one up and how savings plans work, you can get the low-down here.
As you can see, once you’ve got a solid strategy, it’s not difficult to build a portfolio or set up a savings plan. If you want to know more about ETFs and get tips on how to choose the right one, check out our article on all things ETF.
It’s true that markets can be unpredictable in the short term, but you’ll be amazed how quickly you can get your money working for you and reap the long-term rewards.
If you were looking at a medium level of risk, you’d invest half your savings in equities or equity ETFs; with a high level of risk, you’d put all your monthly savings here. Your risk profile is somewhere in between (moderate, but not completely risk-free), so you invest 75% of your savings in equities or equity ETFs. You hold the remaining 25% in cash or put it in a bond ETF or precious metals ETF.
This is the strategy you follow every month when you invest the 200 CHF you’ve set aside. To make sure your investment kitty is always full, you could consider a savings plan. If you want to know how to set one up and how savings plans work, you can get the low-down here.
As you can see, once you’ve got a solid strategy, it’s not difficult to build a portfolio or set up a savings plan. If you want to know more about ETFs and get tips on how to choose the right one, check out our article on all things ETF.
It’s true that markets can be unpredictable in the short term, but you’ll be amazed how quickly you can get your money working for you and reap the long-term rewards.
Start small, think big
You’ve made it this far, which means you’ve got all the information you need to start investing. So, what are you waiting for? Practice makes perfect, and the sooner you get started, the better!
- Take a look at your finances (income versus expenditure).
- Commit to saving a set amount on a regular basis.
- Decide how much of your savings you want to invest.
- Work out your investment objective, investment horizon, investment amount and risk appetite.
- Choose a couple of ETFs to start with (just so you know, there’s a very nice selection in the Yuh app).
- Keep at it! Don’t let market fluctuations get you down.
Got the investing bug?
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