Saving or investing - which makes more sense?
Anyone who has some savings on their account has often wondered whether stock market investments are right for them. Many people are simply afraid of stock market investments, regardless of the product available on it: stocks, bonds, ETFs, futures, options, etc.
Thus, those who do not take the risk of investing in the stock market have to get around the possibility of making money from it. The fact is that it is investments in stocks that have so far achieved significantly higher returns over the long term relative to interest on savings deposits. It is a mistake to think that only professionals or wealthy people can invest in the stock market. Of course it takes time to make the right decision and often to consult with more experienced people. The situation is similar to the one when we decide to buy a new washing machine: we compare, ask questions and then make a choice.
This article is dedicated to all those who do not know how to start their stock market investments.
What is the difference between bank investment products and investment on the stock exchange?
Investment through banks is mainly associated with term deposits or structured products. The advantage of a term deposit is that it limits the risk of the investment: for example, funds in a deposit account are protected up to EUR 100,000 by the European Deposit Protection Fund.
However, even though deposit protection makes day deposits and time deposits the safest investment options, investments in this case are usually not currently protected against annual inflation - and thus become a problem for savers.
If, on the other hand, we invest money in a publicly traded company, we run the risk of that company becoming insolvent at a later date and thus risk losing our savings.
Bank deposits, such as day deposit accounts and time deposits, are therefore mainly of interest to those investors who put safety absolutely first. On the other hand, you can earn a much higher return on your invested capital through dividends or gains from rising stock prices.
What are the best ways to invest money?
There are different ways to invest money in the stock market. These can be divided into: inwestujfinanse.pl
ETFs (Exchange Traded Funds)
Beginners are often advised to invest using ETFs, which we have already written about here. These are essentially stock funds that are not actively managed by the fund, but passively invest in a stock index - such as WIG20, DAX or S&P500. In the case of ETFs, the investor usually takes advantage of positive general market developments and does not act "against" the market like a fund manager. Recently, an additional Beta ETF WIG20 short has appeared on the Polish market, which makes it possible to earn money on declines in the WIG20 index.
When the motivation is to beat the market benchmark, investment in mutual funds may be the way to go. This is a sort of basket of selected forms of investment, which is actively managed by a fund manager. However, it involves additional costs, such as a management fee or a fund management fee.
Depending on which investments are combined into a particular mutual fund, it is called an equity fund, a mixed fund, a real estate fund, etc.
Stock market investments based on investing in shares are among the most lucrative and risky forms of investment. The purchase of shares should be preceded by technical analysis and/or fundamental analysis, which will allow us to understand in what condition the chosen stock company is. Companies with billion capitalization belong to this form of investment, which is not susceptible to strong fluctuations of share price. The situation is completely different for companies that are listed in smaller indices or that are not affiliated at all.
Investment in shares gives the opportunity to earn money in two forms: through share price growth and, if it is a dividend company, its shareholder receives remuneration in the form of dividends.
For more than five years, we have been preparing technical and financial analyses of selected stock companies for you almost daily. We invite you here to join our community and read articles that delve deeper into the topic of investing in stocks.
In addition to stocks, money can also be invested in corporate or government bonds. These are not shares in publicly traded companies, but fixed-rate bonds issued by companies or the state. Profits are not generated with dividends or price fluctuations, but are paid back similar to a loan on borrowed money.
Futures, options, certificates
Leveraged products such as derivatives, options, certificates or futures contracts may be of interest to investors who are willing to take more risk when investing or speculating.
This form of investment is particularly risky and it should be noted that it involves the risk of losing capital very quickly. Hence, it is recommended that it should not be the only form of investment.
How and where can you invest money in the stock market?
You cannot simply buy stocks, bonds, certificates, etc. directly from the stock market. Stock exchange investments are possible only with the help of a brokerage house. Recently we have prepared ranking of the biggest Polish brokerage houses pointing out their advantages and disadvantages. Ranking of brokerage houses is available at this address.
What is the time horizon for stock market investments?
Before making any stock market investment the question should be asked: how much time can one devote to such investment? How much time do we have to not move the invested capital and let it grow? After all, money likes peace and quiet!
For example, in the case of bonds, investors invest from three to seven years. The rule of thumb is: the more years, the higher the interest rate. In the case of investments in the stock market, the time to wait for the rate of return is much shorter, but here, too, at least a medium-term time horizon is recommended (speculation aside).
Stock market investments can be divided into those that have a limited time horizon and those that can be held almost forever. In the case of stocks, ETFs or leveraged products, the investment is terminated by reselling the securities. If the stock or fund shares are worth more when sold than when purchased, the investor profits from the price increase.
How much money should I invest in the stock market?
In principle, for most stock market investments, there is no upper limit for the capital invested. You can follow the rule, the more, the better. However, there are some important things to keep in mind:
Depending on which brokerage house you use, the commissions paid for making a transaction depend. Remember that in case of high turnover there is a possibility to negotiate commissions. A brokerage house will rarely let go of a client laying golden eggs.
-Lack of diversification increases risk-.
Stock market investments should not be based on betting everything on one card. You should invest with your head, in different companies, bonds, ETFs and sectors thus diversifying your investments. Moreover, you should not invest the money that you need for your daily life. Under no circumstances should you invest with borrowed capital or take out loans for stock market investments. Keep in mind that stock market investments, in addition to potentially high returns, are also high risk of capital loss.
-The more time, the better-
It should be remembered that short investment periods often do not compensate for price drops "in time", so it is more likely to lose by selling. The situation is completely different in the case of long-term investments.
To answer the question: stock market investments or saving? We are unanimous that the stock exchange investments made with head are in the long term the best option for our portfolio.