Investing? The stock market? No way. I am not going to lose my hard-earned savings or the money I inherited from my parents in that casino. No, I prefer leaving my money on a savings account. I agree, it pays a pittance but at least I am not losing my savings.

No? Aren’t you? Really?

Let’s take 2 friends; Jeff and Tom. They both are customers of the local cafe: De Volle Pint. Both friends inherited from their grandpa in January 2007 an amount of 25.000 euro.

Jeff went for the prudent solution and put his inheritance on a savings account at the local bank. He knew the director who was also a loyal customer of De Volle Pint so he felt confident.

Tom, on the other hand, went for another option. He always reads the P-magazine (for non-Flemish readers; a magazine with sexy girls in it) at the barber’s but now the local priest was having a look in it so he took the financial newspaper, De Tijd, instead and accidentally read that, on average, “the stock market” brought you a much higher return than a savings account. He thus invested his capital in the stock market. He did not select any individual shares because he knew nothing about shares so he bought “the market”. He bought with his inheritance the MSCI world. I’ll explain later what this is but for now just know that this is an index of the largest companies in the world except emerging markets.

Tom was really unlucky. He had invested his entire amount in one go, just before one of the worst financial crises of the last decades. A good year later, Tom looked very gloomy. He lost almost 50% of his inheritance, for which his grandpa had to work his entire life. He cursed the day he read this bloody newspaper that made him believe the little guy could make some money by investing.

He was so disgusted with his disastrous decision that he preferred not to be confronted with his folly any longer and he did not look at his investment account any more up until now.

We are 14 years later, end April 2021, and Jeff and Tom are still loyal customers of “De Volle Pint”

The café is run by Jeanine and both friends are somewhat sweet on her and both invite her for a holiday in Benidorm.  Jeanine is interested but she likes luxury and announces that she will accompany the friend who can offer her the nicest holiday.

Both friends are now retired and with their meager pension they cannot offer Jeanine a very fancy holiday so they both decide to tap in the inheritance from their grandpa.

Jeff still remembers what Tom went through with his investment so he is very confident, already imagining himself on the beach of Benidorm, with Jeanine at his side. But when both friends bring their respective statements to the café, he is in for a surprise. On his savings account is still the 25.000 EURO.

When Tom takes out his statement it shows around 55.000 EURO. If Tom would have re-invested his dividends, instead of buying beers with them, he would even have had around 70.000 EURO.

This despite Tom investing his capital at the worst moment of the last decades.

Moreover, he has been able to buy a lot more beers from his dividends than Jeff from the interest on his savings account.*

Jeff receives from his bank a generous interest of 0,60% what results in a yearly return of 150 EURO. From this he can buy himself one beer a week. Tom could buy around 17 beers a month from his dividends, which mounted in 2020 to over 400 EURO..

Of course, in Benidorm, like in any place in the world, one does not receive the same amount of goods or services for 25.000 EURO in 2020 as you did in 2007. Let’s presume inflation was a mere 2% yearly. The amount of 25.000 euro of 2007 would only be worth around 18.000 EURO in purchase power of today.  The inheritance of Jeff’s grandpa is quickly melting away. Also bear in mind that the Covid crisis accelerated the already ongoing mowe towards big-government and that central banks are in the process of printing money, without any restraint, in order to cover ever-growing public debts. Numerous examples in the past, such as the French assisgnats after the French revolution, showed us that this never ends wel. Never, ever! it always ends by money losing its value, the middle class getting ruined, chaos and political radicalism. Is this inevitable? No, not if you do something, other than complain about it behind a beer in the café.

Joke apart, this is a story lived by every saver in the world of today.

Moreover, a recent survey, conducted by tle insurance company NN, indicated that around 60% of all Belgians stated that they had no confidence in still being able to lead a confortable life during their pension. Only, or rather, still, 18% believes the government will be able to pay, in future, the promised pensions. Yet, only a limited group indicates that they take action to remedy this situation. Most people are very uncertain on how to build a portfolio that might give them some financial security. Most politicians don't want people to take individual action because they prefere people to feel dependent upon their policy, and thus continue to vote for them. Thus they demonize investing, point out to the dangers of crashing stock-markets and systhematically put away investors as "wicked speculators". You trust that in future everything will turn out to be just fine and the government will provide for a comfortable life? Stop reading.

If however you want to built your own financial cushion and you are interested in getting a potential higher return on your savings than the meager interests on a savings account, please continue reading …

 

* I assumed Tom bought the ETF iShares MSCI World Distribution which returns a quarterly dividend.

Disclaimer: I would like to remind you that the data contained in this mail/table is not necessarily real-time nor accurate. All information comes from various websites and other sources, so figures may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for investment purposes. Therefore I do not bear any responsibility for any losses you might incur as a result of using this data.

I will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts or opinions contained within this mail/table. Please be fully informed regarding the risks and costs associated with trading the financial markets, .