How to invest if you're on a tight budget
January 18, 2022
3 minutes to read
It is often said that you won't get anywhere investing €100 or €1,000, or that people who want to invest don't think they're rich enough. That's why people never take the next step. Sometimes, of course, it's simply not the right time: buying or renovating a house, changing jobs, starting a family, etc. There are various points in life where the aim is to save as much as we possibly can – and don't even consider investing as an option. That's completely normal.
The great disappearing act
If you don't have any major projects on the horizon that will eat into your savings, now may be a good time to start investing. The combination of low interest rates on savings accounts and high inflation means your purchasing power is dropping. In layman's terms, five years ago you could buy a bag of 20 bread rolls for €10; today, that will only get you 16 rolls. You should therefore seek a solution that offers the prospect of potential returns to maintain your purchasing power. In today's world this won't be found in savings accounts. However, it may lie in investing. Although many Belgians think they're not rich enough to invest, few Belgians are rich enough to keep saving.
€0.50 a week
€25 a year is enough to start investing. That's €2.08 a month, or €0.50 a week. Saving and investing are closely linked: in order to invest, you first need to put a little money aside. This takes far less time than you may think, and you can do it in very small steps. If you don't save or find it a struggle to do so, you can start by putting €5 aside each week. That may not sound like much, but over the course of a year that adds up to €260. Once the savings amount for your investment is large enough (i.e. €25), you can get started. Although this may sound (too) simplistic, it's often an essential first step when you're short of cash.
Investing €25 means €24 in costs, right?
It's true that you won't be able to buy shares in Amazon, Daimler or Solvay straight away with €25. And investing in individual shares involves costs and taxes for each transaction, too. Does it stop there? No.
You're right in thinking that investing comes at a cost and that you can't put together your own equity portfolio with just €25. However, investing has become so democratic that you shouldn't be put off. By regularly investing in an investment fund, you can invest using small amounts without your funds being hoovered up in transaction fees and taxes. An investment fund is a basket of dozens – or even more than a hundred – different shares and bonds, allowing you to invest (1) with a limited sum, (2) in a single product, and (3) in different companies at the same time.
It goes without saying, though, that an investment fund manager won't work for free, so you'll be charged ongoing fees as a percentage. This usually fluctuates between 1% and 2%. Relatively speaking, however, these costs are much lower than if you were to build your own equity portfolio with a small amount.
Investing with borrowed funds is a big no-no
If you're short of cash, you may be tempted to borrow to invest. This is especially the case in times when stock markets are breaking records, as investors sometimes forget that the markets can also fall. Borrowing money to invest is never a good idea, however – certainly not if you're on a tight budget and can't afford to take any risks. A basic rule of thumb when it comes to investing is that you should only invest with money that you can do without for a few years. After all, there's no guarantee that you'll actually turn a profit!