18 March 2019
Investing without risk: a possibility?
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 risk-free investments?
Belgians are well-known champions in savings and property. Although neither are entirely risk-free, many Belgians traditionally favour these 2 options. However, they provide a relatively low yield in the long term. Alternatively, you can make investments: they produce potentially higher returns than a savings account.
Create an investment profile
Before you start investing, you need to determine your investment profile. This is done using a questionnaire which asks you about your knowledge of finance, your experience, your investment horizon (how long will it be before you need the cash?), your appetite for risk, your aversion to possible losses and your willingness to handle fluctuations on the stock market. With this approach, you and your adviser can choose the investment products that suit your profile best.
Spread, spread and spread 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: spreading is the Holy Grail of 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 or bonds.
How wide a spread?
Some funds invest in specific regions or sectors (Europe, Asia, sustainable energy, pharma etc.), while others apply a more general strategy. If you invest in ten or twenty different funds, your investments will be very nicely spread. When investing, it is also best to select a bank that has a ‘supported open architecture’. ING offers a selection of the best funds from 5 partners: AXA IM, BlackRock, Amundi, Franklin Templeton and NN Investment Partners.
Apart from equity funds and bond funds, there are mixed funds as well. These invest partly in stocks and partly in bonds. Another interesting way to spread 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, you should really work on a horizon of 5 to 7 years. That way, you are giving your investments time to recover if the stock exchange does not do too well.
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.
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 or have slumped sharply. If you want to reduce the risk of poor timing, you can spread investments over time. It is possible to do this, for example, by investing part of your disposable cash in a fund every month or every three months. Regular investment doesn’t even require large sums of money: it can be done at ING from 25 euros per month.