Managing your capital

22 November 2021

Investing without risk: is it possible?

Looking for more of a return than the interest on your savings account? In that case, investing may be an attractive option, but is it possible to make them risk-free?

Belgians are well-known champions for savings and property. While neither are entirely risk-free, traditionally, many Belgians favour these two options. However, they provide a relatively low yield in the long term. And because of low interest rates, savings lose their purchasing power: over time the prices in shops rise higher and faster than the interest on savings will earn. Alternatively, you can invest, which will bring potentially higher returns than a savings account.

Completely risk-free investing is impossible. Every type of investment carries risk. Take purchasing a home, for instance. Property is often seen as a safe investment, but property prices can also fall. With investment it works just the same way. The fundamental principle is the more risk you take, the higher the potential return can be.

Read our tips below on how to limit the risks.

Create an investment profile

Before you start investing, you need to establish your investment profile. This is done using a questionnaire that measures your: financial knowledge, experience, investment horizon (how long will it be before you need the money you’re investing?), risk appetite, investment goal, financial situation, aversion to possible losses, and your willingness to weather stock market fluctuations. Using this approach, you and your adviser can choose the investment products that suit your profile best.

Diversify, diversify and diversify again

Investing all your money in one product, market or sector is especially risky. Whether you are a rookie investor or the American business magnate and investor Warren Buffet, diversification is the Holy Grail for every investor. Does that mean your only option is to purchase thousands of different shares and/or bonds? No, not at all. Investment funds (*) offer the ideal solution to this problem. A fund is a basket containing dozens or even hundreds of different stocks and/or bonds.

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(*) 'Fund’ means 'Collective Investment Undertaking' (CIU). CIU is a general term used for institutions that raise their financial resources from the public, and whose activity consists of managing a portfolio of financial instruments. The term ‘fund’ groups both investment companies (such as an investment companies with variable capital [SICAVs] and investment companies with fixed capital [or SICAFIs]) and investment funds (such as mutual investment funds) as well as their sub-funds.

How widely should you diversify?

Some funds invest in specific regions or sectors (Europe, Asia, sustainable energy, health care, technology etc.), while others apply a more general strategy. If you invest in ten or twenty different funds, your investments will be nicely spread. When investing, it is also best to select a bank that has a ‘guided, open architecture’. That means that the bank offers funds not only from its own bank, but also from other financial institutions. ING is the only major Belgian bank that has this architecture and offers a selection of funds from 5 partners: AXA IM, BlackRock, Amundi, Franklin Templeton and NN Investment Partners.

TIP

Apart from equity funds and bond funds, there are mixed funds as well. These invest partly in stocks and partly in bonds. It’s another attractive option for diversifying your investments.

Investing is a marathon, not a sprint

Do you want to buy a house with your savings next year? In that case, you’d be best to leave your savings in your account. You should always make investments for the long term. Depending on your investment profile, the preferred investment horizon is between three to seven years. This gives your investments time to recover if the stock exchange does not do too well for a while.

It does not make sense to keep going in and out of the stock market: you run the risk of missing out on returns, and a large number of transactions costs money. In addition, nobody can predict what markets will do in the short term. That was apparent again this year, when markets collapsed in March and then recovered soon afterwards.

Limiting the risk of mistiming

Investments never follow a steady trend: they rise and fall by turns. Many people who consider making investments are afraid of starting at ‘the wrong time’. For example, when the stock markets are at an all-time high. If you want to reduce the risk of poor timing, you can spread investments over time. This is done by, for example, investing some of your available money in an investment fund every month, or every three months.

Are you looking for potentially higher returns on your savings, but want to limit the risks at the same time?