What Is The Best Way To Invest In Stocks And Bonds Right Now? And Can You Create A Financial Free Life With This Strategy?
A share represents a piece of property of a listed company. These shares are traded on the stock exchange and as a private individual you can buy them through an investor account at the bank or at a cheap online broker. For example, you can buy Heineken shares and thus become co-owner (legally it’s a bit more complicated, but it’s good to see yourself as co-owner). One of the tips we can definately give you is to do research, there are quite some horror stories of online brokers in Argentina that messed up debit accounts of users.
As Heineken’s earnings per share rise, so does the value of a share. But when things get worse, the value of a share can plummet as well. In addition, many companies pay out part of the profit in the form of dividends. The dividend paid by Heineken in 2016 represented a dividend yield of 1.5%. That may seem small, but it is four times as much as the highest savings interest rate at the moment.
- The price of a share can fluctuate considerably and investing in equities is therefore considered quite risky. Historically, equities provide by far the most return over time, but you need a long investment horizon. At least 10 years. My investment horizon is 24 years (until I retire), so I mainly invest in equities.
- By investing a fixed monthly amount in a share ETF such as Vanguard S&P 500 ETF (index fund), you spread the risks over time. This is called ‘dollar-cost-averaging’ (see my investments for an example). This way you buy more shares when the price is low and less when the price is high. So start investing by investing a fixed amount each month instead of all your assets at once. You can invest very small amounts starting at 20 euros.
What is a bond?
Bonds are negotiable debt securities for loans issued by companies and governments. If a government or company needs money, they can go to the bank, but they can also put out a bond loan on the market themselves and cut it into small pieces. If you buy a bond as an investor, you become a lender, but not a co-owner.
- Those who buy bonds receive a fixed annual interest rate. Depending on interest rates, the reliability of the issuer, the price of a bond can fluctuate. Bonds generally yield more than savings, but less than shares. Also in terms of risk, it is between savings and equities. Bonds are part of every investment portfolio. Especially for people who either need a regular income or want to run little risk of falling.
Setting investment targets
Abstaining from consuming now in order to be able to spend more later can be a challenge. Monthly freeing up money to invest is not only the first step when you start investing. It is also the most difficult. Putting money aside for later is much easier if you have clear and concrete goals. Why do you save money and what are you going to use it for? Depending on your spending goals you choose your investment horizon and this helps you to choose specific investments, if you are living in another country like Mexico, we would advice you to check mejores brokers en Mexico 2021 at C-Tradealert.MX to make sure that you choose the right partner..
Do you want to enable your children to study in 15 years time? Or do you want to quench your thirst and supplement your pension? My investment goals are a study pot for our son and a supplement to our pension. This is an example for a family with 1 child:
- 3 net monthly salaries with a total of € 10,000 in the savings account to absorb financial setbacks
- In 2034 € 17.500 for the study child
- In 2049 € 180,000 in assets (in addition to home and employer’s pension) as an appeal for thirst and pension supplements