Most of us know how to spend money but many do not know how to make their money work for them. The way investment products work is still a mystery to the majority of people, according to ING’s sixth annual savings published in January 2017 Many respondents stated they are angry, frustrated or worried about low interest rates on savings. Nearly one in four (23%) explained low interest rates have them worry about saving for retirement while one in five (20%) declared this situation means they can’t meet their savings goals. Despite this situation, few indicated a move towards investments rather than savings. Only 4% bought real estate and 17% some other investment, such as shares and bonds.
It is a fact that putting your money aside in a savings accounts nowadays isn’t what is used to be due to low interest rates. If you want some return, you can’t let your money hibernate, just like the majority of our parents and grand-parents did during the heady days before the recession, when it was possible to earn up to 10% interest on saving accounts. You have to put your money to work. Does it mean that you need to have a greater appetite for risk taking and invest all your money in the stock market? Certainly not. As usual, the best solution is to find the right balance between saving and investing.
Saving for the short and the long term
According to ING’s savings survey, 29% of people in Europe have no savings and of the 71% who have savings, a large share (36%) have no more than the equivalent of three months in take-home pay. To secure your financial position and allow yourself to create an emergency fund, having a savings account, ideally funded by an automatic savings plan, is more than ever a necessity. By doing so, you protect your short-term needs in adverse scenarios such as losing your job or facing unexpected expenses. It could also be helpful if you need a little extra: a larger house or a well-deserved holiday for instance.
For longer-term needs such as your retirement, only banking on your savings account is probably not the best option. Interest rates on savings accounts are currently so low that your return will be reduced to nothing, and you are even likely to lose money if you take inflation into account. What is the alternative? Almost all investments have a certain level of risk. In general, the higher the risk, the better the potential return, but it also means the higher the risk, the higher the potential losses. Moreover, some investment products require amounts of money you might not have. If you are a novice in investment, rather risk-adverse or don’t have that much money to put aside each month you can choose solutions such as ING’s Invest Plan.
Invest Plan is a flexible tailor-made investment plan which enables you to start investing with as little as €50 per month. It blends the characteristics of a savings plan with those of a financial investment. Thanks to its flexible formula, your investments are spread over time and benefit from financial market trends. In other words, the longer you invest, the higher the chances that your Invest Plan will outperform your savings accounts. In addition, Invest Plan is easy and simple to manage. Once your investor profile has been defined, your investments are made via automatic instalments at regular intervals (monthly or quarterly) which you set yourself. You can follow and modify your Invest Plan anytime and anywhere from your computer, smartphone or tablet.
You’ve got the power!
So now you know what to do to reach your long-term goals and make your savings grow faster. Proactivity is always more profitable than passivity.