Saving or investing? Ever considered combining them both?
How to combine saving and investing
A smart first move is to set aside a savings buffer. Save at your own pace until you’ve put away the equivalent of about three to six months’ salary to cover any unexpected expenses. This savings buffer is safe and provides financial protection in the short term. However, if you just keep on saving, you run the risk of your money losing value because of inflation. Things become more expensive, meaning you can afford to buy less with the same amount of money.
Invest money you don't need right away in the following order:
Save enough to cover both unexpected costs (such as a broken boiler) and planned expenses (such as a holiday abroad).
2. Opt for tax-efficient saving
Pension saving and long-term saving let you put money aside for later and save you hundreds of euros in tax payments each year.
3. Start investing (small sums of money)
The third step is to invest. You can always start off very cautiously by investing just your spare change, for example.
Why combine saving and investing?
By combining saving and investing, you protect yourself financially over both the short and long term. Your savings buffer covers the short-term, while your investments can prevent inflation from nibbling away at your purchasing power.
Let's take a closer look at the effect of inflation. Inflation can be higher one year and lower the next. However, in the following example, we’ll work with the European Central Bank's target of 2% per year. This means that 1 000 euros today would be worth 10% less in five years’ time.
On the other hand, the money on your savings account earns interest. It too can fluctuate, but the legal minimum rate is 0.11%. That rate alone won't help very much, as 1 000 euros on your savings account would still only earn 5.50 euros in interest after five years. By that stage, you will have lost around 100 euros in purchasing power.
As the years go by, therefore, your savings could start lagging further and further behind inflation. By investing that money, you can try to counter the effect of inflation. Of course, this also entails certain risks, but over a period of five years or more, the stock market has pretty much always outperformed inflation in the past.
True or false: which statement about investing do you believe?
Not true. In fact, the younger you start, the longer you benefit from the ‘interest-on-interest’ effect. That’s because the return generated in the previous year can itself generate a return the year after. In good stock market years, your capital grows exponentially. Another thing is that it’s possible to start investing with very small sums of money at KBC, like investing your spare change.
You’re free to build up that knowledge if you want, but it’s not necessary. When you choose one of KBC's investment plans, you invest in a fund that’s been put together by our experts, who’ll also actively manage it for you. This relieves you of the task of responding to changing market conditions, which gives you more time to get on with other things. At the same time, you remain in control – you can at any time adjust the amount you invest each month, you can pause it or even stop it.
You can take more or less risk with your investments. If you prefer to play it as safe as possible, we’ll identify your preferences through your investment profile. We’ll then invest on your behalf in a ‘defensive’ fund that entails less risk than average. It’s also a good idea to invest periodically (e.g., monthly) for a longer period of time. By adopting such a staggered approach, you always end up investing at average prices.
What’s KBC’s approach to saving, investing or both combined?
KBC has long been a bank for savers and investors. Besides our savings accounts, you can also fall back on our years of expertise in investing:
- An investment strategy that takes account of your changing needs
- Easy ways to get started include spare change investing
- A fully digital approach or with personal advice
- Investment funds and investment-type insurance products
- Pioneer in responsible investing
Itching to give it a go? Check out the different ways for beginners to start investing.
