Wednesday, May 18

How about investing your savings? Advice before starting

Interest rates are at rock bottom, so maybe it’s time to think about alternatives to savings. First advice to give: keep at least 6 months of monthly expenses in a savings account. In the event of a hard blow, this money is liquid, immediately available and will make it possible to deal with the unexpected.

If you have more money than these 6 months of expenses in your bank account, you better put it to work, because this money melts very slowly because of inflation and it is detestable.

You can decide to orient yourself towards investments, but by accepting a basic rule: who says return says risks, nothing being more protected than the savings account.

What are the questions to ask yourself before taking the plunge?

First question: what should these savings be used for and for when? Either you need your investment to pay dividends or interest every year to supplement your income, or you want to grow your wealth. The answer to this question will lead you to very different investments.

Second question: what are your skills and your time to manage your investments. Again, this will determine whether you will decide what to buy on your own or whether you will trust investment funds. There are number of small applications to buy and sell easily. But this requires a minimum of skills and having the time to monitor developments, to read, to understand trends.

How much risk are you willing to bear?

Since the financial crisis, the rules are strict: the bank must exchange with you to fully identify your risk profile, the level of risk that you accept knowingly. This is called MIFID (Markets in Financial Instruments Directive). Behind this acronym hides a European directive that all financial intermediaries operating in Europe must imperatively follow. They cannot, among other things, advise you on products that are not suited to your risk profile and the products they advise you must be those that come closest to this profile.

This profile is established through a series of questions on financial knowledge, investment experience, financial situation and investment objectives. This is the mandatory prerequisite before making investment recommendations. Last element to take into account before investing, is there a succession in sight? This may affect your investment strategy.

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