Hello hello!
Do you want to start investing?
Congratulations!!!!!!!!!!
But first, to get you started in the best possible way, how about reading this little (but not so little, okay, but it’s for your own good ? ) blog post that I’ve put together especially for you?
Because yes, here you’ll find the 10 things that are absolutely essential to know before investing.
So, get ready! Let’s get started!
PS: If you’d rather watch the content, you’ll find a YouTube video at the end of this article ?
Have you ever heard of a safety fund?
I’ve put it first because I think it’s essential for your security. Before making an investment, or at least at the same time, you need to create a security fund for yourself. This security fund can be between 3 and 6 salaries and is there in case of a hard blow, such as redundancy. Because yes, there is unemployment, but you may have a waiting period before you are entitled to unemployment benefits, and that’s where this fund will help you. Similarly, you may have an accident (which I don’t wish on you, let’s agree!) or health problems that arise without warning, resulting in unexpected bills. Once again, your security fund can help you meet these expenses. You’ll have understood: with me, security comes first!
ATTENTION, Financial Advisers in sight
Now that you’ve built up your security fund, or that you’ve built it up and want to invest, the second thing you need to know is that there are people who are going to try to get into your life… So let me stop you right there with your romantic thoughts, I’m not talking about true love here (unfortunately)!
In the course of your life, you’ll meet investment advisers who will either be dependent or independent. Here’s a quick briefing.
Dependent advisers, as I said, are dependent on fund managers, so in short they will receive a commission for the products they offer you, such as life insurance or 3rd pillar contracts. This commission is in fact their remuneration.
So if there’s one thing I can recommend on this blog, it’s that you DON’T DO BUSINESS with dependent investment advisers.
Ok, Elo, I hear you, but why?
Here are my reasons. The first is that the investments offered won’t necessarily be the most suitable for your situation, since they also have to be investments that make money for your investment adviser. Let’s face it, these advisers have to sell the products of the organisation with which they are affiliated, so if the product that’s right for you is with the competition, they just won’t offer it to you.
The second reason is that your fees will be proportional to the amount you invest. In short, the more money you have, the more you invest, and the more you’ll pay in fees.
Generally speaking, you pay a percentage, so if, for example, you have an 8% return but you have 1% to 2% in charges, in reality you will only have 7% to 6% return left per year. Over a year, you might think that’s not much, but over decades it could cost you more than CHF 200,000 with compound interest!
So it’s very important to be aware of this!
On the other hand, an independent investment adviser will offer you investments that are totally suited to your profile, as they are not paid at all for the products they offer you. And that’s a real advantage in my eyes! On top of that, he doesn’t take any percentage of your investments, or anything for managing your investments. Instead, they charge you a fixed amount for their services, which can save you money in the long run.
Be careful, though. Some independent advisers can be very expensive, without having any real expertise. What you need to remember is that there are advantages and disadvantages with each of them.
But personally, I’d prefer independent investment advisers, if you have to use them and don’t want to manage your investments. But if you read my blog, you’ll be able to manage your investments without any worries ? !
It’s accessible to everyone!
The third thing you need to know is that investing is accessible to everyone, even if you only have CHF 50 to invest!
Mind you, I’m not telling you that you’ll be a millionaire in 30 years’ time by investing just CHF 50 a month.
But the more you invest, the more you’ll earn and the more you’ll be able to make your money grow!
So it’s important to maximise your investments, but it’s also really important to know that you can start right now!
If you can afford to invest CHF 50 a month right now, that’s already a good start! And then, you know, the secret of compound interest is to invest in shares that pay dividends and reinvest those dividends.
Even with just CHF 50 a month, you’ll see that it can really work!
What’s more, it’s never too early to take care of your finances, make your money grow and optimise your budget. Just imagine, when your income increases, you’ll already have acquired this good habit and you’ll be even better prepared for the future.
Does the DCA mean anything to you?
And yes, the fourth thing I’d like to share with you is the famous strategy known as DCA – Dollar Cost Averaging. This method involves investing a small amount periodically, to smooth out your entry price.
For example, you buy a share at CHF 50 the first month. The following month, the share price falls to CHF 30 and you buy it again. Then, in the 3rd month, the price rises to CHF 36, and you buy the share again. Your entry price per share will be 116/3= CHF 38.66, instead of CHF 50 (150/3) if you had bought 3 shares in the first month. You will therefore benefit from greater long-term capital gains if the markets rise and your share price rises, but let’s be positive ? !
The magic of ETFs
You heard about it in my previous article, but I’m putting it here again. You should know that ETFs are good options for starting out in investment.
As a reminder, an ETF is like a basket of financial securities in which you are going to invest.
Instead of trying to choose the best company to invest in, and wasting hours analysing its performance, you can choose to invest in a basket that is diversified, such as the S&P 500, which groups together the 500 best American companies, or the SMI, which groups together the 20 biggest Swiss companies listed on the stock exchange.
As you can see, this will generally be a basket of companies that are performing well.
Of course, it’s very important to analyse these ETFs carefully, because they’re not all the same. Some have higher fees, others perform better, and so on.
The important thing to remember is that ETFs are a very good way of investing while limiting your risk, since it would be very rare for all the companies in an ETF to go bankrupt at the same time.
And the icing on the cake is that, as well as limiting your risk, you’ll be able to start investing with a little more peace of mind ?
Diversification: the watchword!
Yes, a good investor is someone who knows how to diversify. We’ve just been talking about ETFs, which are a very good way of diversifying your investments without having to spend hours analysing different stocks. However, diversification can also be done from a sectoral point of view, from a geographical point of view, as well as from an asset class point of view (shares, bonds, ETFs, precious metals, etc.). The more you diversify, the more you’ll have investments that are profitable, secure and that, on top of all that, over the long term, will protect you against numerous crises and financial events.
When should you invest?
At the risk of shocking you, “the best time to invest is when there’s blood in the streets”, as John Templeton once said.
What he means by this is that, apart from investing in DCA, when you want to invest, you should buy from pessimists and sell to optimists.
Let me explain. Basically, you’re going to make a lot of money in the long term if you buy when everyone else is selling and everyone else is scared. And then, later on, when people become too optimistic, the best strategy will be to resell.
But remember that I’m recommending that you invest for the long term, so this little strategy of investing when people are extremely pessimistic and selling when people are a tiny bit optimistic will allow you to keep a margin of safety.
This author also says that impatient people pay patient people. To put it simply, you really need to be patient if you invest and buy when people are pessimistic.
Why am I telling you this? Because if there’s a crisis, shares or ETFs are likely to fall again, and you’re likely to become pessimistic. The important thing is to tell yourself that you’re investing for the long term and not to start selling out of fear when financial assets fall.
If you follow this technique, you will be much more likely to have investments that meet and exceed your objectives!
Pillar 3a in Switzerland, a nugget!
The eighth thing to know is that you can get a tax break on your investments, obviously via the third pillar in Switzerland. It’s very important to use pillar 3a, because it means you won’t pay too much tax on the capital gains and interest you earn on your investments this way, and it will also reduce your income tax, because your income will be reduced by the amount you contribute to your pillar 3a. And less tax means more money to save and invest ?
Traditional banks, no thanks!
The penultimate thing I’d like you to know is that it would be best to avoid traditional banks when making your investments.
And why is that?
Quite simply because their fees are very high, and as I explained at the beginning of this article, the higher your fees, the lower your profitability!
You really need to be aware of this! The 2 to 3% less return will mean that you will lose several years and will therefore reach your financial goal at 60 instead of 50, for example. So it’s really important to pay attention to this and limit your costs!
50/30/20, the rule to remember!
And now we’ve come to the end of this article. So, the last thing I’d like to pass on to you is the 50/30/20 rule. This involves splitting your after-tax salary into three parts.
Have 50% for all the essential expenses in your day-to-day life, such as rent, food, electricity, wifi, telephone subscriptions, etc.
30% for all the fun stuff like restaurants, sports, Netflix etc.
And 20% for savings and investments.
To find out how to apply the method to your profile, I’ve made you a little YouTube video, which you can find just below ?
A little bonus for closing
If you want to get rich, you need to prioritise your investments. Winning the Euromillions, investing in Bitcoin at the right time and becoming a millionaire overnight concerns less than 0.1% of the population.
So instead of going and playing the Euromillions every week and throwing your money away, focus instead on getting rich, on what you can do now to be able to get rich. One thing that has worked for many people and continues to work, especially for those who were not born into a wealthy family but who became rich later on, is that they prioritised their wealth, they worked hard to increase their income, they didn’t spend it all and instead prioritised part of their income to invest it and make it grow. When we talk about investing, we’re talking about taking a long-term view, which means investing your money in DCA as we’ve seen, after you’ve made your security savings. That’s really essential! You have to keep this in mind at all costs!
That’s it for this article. If you have any questions or feedback, don’t hesitate to write them under this article, I promise to answer them very quickly.
And finally… TO YOUR INVESTMENTS!
