I grew up thinking so.
Nobody told me directly, but everything in my environment led me to think that. At home we would not discuss money and there was a no investment profile, if we were to have any it would be extremely conservative. But saying we didn’t have was more accurate. The idea was “nobody gives nothing for free” so don’t trust banks promises for profit.
I think I’m not a weird case. In Spain there is not much culture of investment, it is not something that we study in school or that is present in the media. Most to people keep their money in the current account. Or at most in a fixed-term deposit.
I myself invested for the first time in 2017. Until then, my savings were idle, losing value. And that’s a mistake (which I learned very late).
I know it’s a difficult issue. Investing is scary if you do not know where to start. Ddeciding to invest can seem incredibly complicated and risky.
And this post is not an introduction to all the options in the market. Today I just want to talk about a simple, affordable product that allows you to put your money and forget about it.
I’m talking about the Index Funds.
What are Index Funds?
We have all heard about the IBEX 35, and if you like the economy, you will be familiar with other international indices like the S&P 500 or the Dow Jones. These indices represent the market.
For example, the IBEX 35 is a weighted index (not all companies weigh the same) of the 35 companies with the highest market capitalization in the Spanish stock market.
Basically, it represents the Spanish market. And it changes with it, increasing and decreasing its value and also in its composition as the prices of the companies that make it change.
Here’s the key: when you invest in an index fund, you invest in all the companies in the index to which the fund is referenced.
Index funds are interesting as a long-term strategy. They are good if you do not want to investigate, follow companies, economic news, try to time when to buy and when to sell.
Because if you have a sufficiently long horizon, the market always goes up. And with it the index fund that represents it. But long term can sometimes be very long term. The example of this is Japan where the index took 10 years (2007-2017) to recover.
In my opinion, the best financial market to invest is the US market. And the Index that best represents it is the Standard & Poor’s 500 (^ GSPC).
The graph below shows its evolution in the last 23 years. You can see the crises that we thought we would never get out of, the dot-com boom and the crisis of 2008. And it looks like, with time, it always goes back.
How to invest in Spain: our example
Our goal for 2017 is that 50% of our portfolio is composed of index funds.
There are many different options. In my opinion, you should diversify into several variables.
We have four index funds and we work with two different investment banks or brokers. The first two are global indexes, and we have 20% of our portfolio in each. The other two are riskier, one follows small cap and another emerging markets.
Another important factor to consider are the costs: you have to choose funds with low commissions.
Our portfolio at the end of May 2018:
To get started we recommend the Amundi MSCI world. If you want to know more about our funds we leave you the links to the files of the managers. There you can see profitability, costs, history, etc.
My experience with SelfBank was good. I opened the account from home, with the computer, fast and simple. Mr Lyn had a slightly longer process with BNP (being working outside of Spain they asked him more questions), but once you open it it goes very well too. BNP offers the long-awaited Vanguard fund (not the one you’ll read in American bloggers, the VTSAX, but the European version). It is the one that less charges from the market and is recommended by many people in the IF way. We wanted one that would follow the S & P500 and a global one, and that’s why we chose these two. And we are happy with both.
IMPORTANT NOTE: after having written this post BNP announced a change in their conditions, adding custody fees to some funds such as the Vanguard that I recommend. We are reviewing our portfolio, in future posts we will tell you our decisions.
If you want to know more about the subject check out this post.
Do you want to invest?
If you have never invested, I want to make a proposal. Begin with me in this world and give it a chance.
Conditions for it to work:
- that is money that you do not need in the short term (you will have liquidity to take it out when you want, but for this to work you should leave it at least 5 years)
- that you are able to leave it there even when the markets fall or a crisis comes
- that you are willing to open an account in a broker like BNP or SelfBank
The minimum amount of investment is € 1000 in SelfBank. In BNP several of the funds have no minimum so you can start with 100 euros, for example. Open the account, make the investment and let it be, forget even.
You can check how it goes every 3 or 6 months. If you are convinced (you will when you see the difference to have the money in the account) you can increase your investment little by little.
I have a scheduled monthly transfer and that’s how I make sure to invest every month. Sometimes it will be more expensive and sometimes cheaper, but I do not care. I just put the money and let it grow.
Nothing else! And nothing less! 🙂