Structure your wealth accumulation
Saving and investing provide additional wealth. Unfortunately, these days, many people save and invest their money without goals or structure. They hope for a huge return without running the slightest risk. But that is not the way it works. It is only possible to build up wealth by setting objectives and ensuring a sound structure. And the more money you have to invest, the more important this is.
A SOLID FOUNDATION
Many people experience poor return due to this lack of objectives and structure. However, it is possible to structure your savings by means of an investment pyramid. The base of this pyramid is made up of your savings account and your current accounts. This foundation must be solid, in order to deal with unexpected costs. It is generally estimated that such a buffer should be three times the monthly income. This money is always available, but it does not provide much of a return. And worse, when inflation is higher than the return on the savings account, you lose money. For this reason, you must put as much money as possible – money that you do not need immediately – into the different levels of the pyramid.
INVESTMENTS WITH GUARANTEED NET CAPITAL
In the first level, there are investments with a guaranteed net capital, such as savings bonds, term accounts or branch 21 life insurance. These are very safe investments which provide a higher return than a savings account. This money may not be available immediately, but you do not usually need it straight away. Note that for branch 21 products with a duration of eight years or less, the withholding tax is 30%. However, it must be taken into account that the guaranteed interest will not be far from 0%. However, a small profit share can be expected. Remember that there are entry fees (max. 4.5%) and sometimes also management fees (max. 0.3 %). Capital guarantee is therefore a relative concept, even in the case of branch 21 life insurance.
COLLECTIVE INVESTMENTS WITHOUT GUARANTEED CAPITAL
A higher potential return, but with a higher risk
At the second level, we find investments without guaranteed capital, such as mutual funds in capital and/or shares and branch 23 life insurance. These investments offer a better return than those at the lower level, but they carry a greater risk. Neither the return on capital nor its maintenance is guaranteed. However, it is possible to make a risk-based subdivision within this level: bonds are of course safer than equities. In the case of branch 23 insurance, you do not pay withholding tax, unless the policy provides for a guaranteed return.
Of course, you can limit the risks by choosing a good mix of stocks and bonds (or by choosing mixed funds). In addition, it is preferable to choose a careful geographical mix. This will help you to limit the effects of a crisis in certain parts of the world. The same is true for sectors: the diversification of sectors is a wise choice. In short: diversify your investments. Mixed collective investment funds can help you to do this. Some financial options such as stop loss (or stop protection, an order which is only sent to the stock market when a certain trigger threshold is reached) or drip feeding (a drip entry) are other possibilities for safer investments.
THE TOP OF THE PYRAMID
The top of the pyramid consists of the riskiest investments. Here we find investments in individual shares, where the return depends entirely on the company's performance. Here too, there is the possibility of limiting risks by ensuring greater diversification. This diversification provides greater security, but at the same time it can affect yield.
Think about it: on 1 January 2017, the speculation tax on capital gains realised on the sale of listed shares or units, listed options and warrants and other listed financial instruments was abolished.
Everyone can achieve this pyramid according to their own objectives, investment horizon and investor profile. Building an investment portfolio according to this principle provides a well-considered investment strategy. You thus achieve a healthy structure and you can invest your money with a goal, while limiting risks and aiming for a higher return.
AN EXAMPLE
It may be better to illustrate this with an example. Eric has a good job as a manager and earns about three thousand euros a month. In his current account, which he uses to pay current expenses, and in his savings account, he has a total of about 10,000 euros, which is approximately 3 times his monthly income. At the first level, he has a branch 21 life insurance policy and some investments with guaranteed returns. This is money which he will not need in the years to come. He also invested 5% of his assets in gold. The 2ndlevel consists of investments without guaranteed capital. The money he receives from these investments is invested in new investments. Finally, at the top of his pyramid, he still has part of his assets in shares from a few companies whose performance he monitors closely. For this, he followed the advice of a specialist. Of course, to limit the risks, he chose companies from different sectors and regions of the world. This takes time, but it ensures that risks remain limited.
Do you want to invest according to your profile? NN certainly has the right savings formula for you.
