Why invest?

Imagine that you have a million euros under your mattress, just sitting there since 2014. Is it still worth a million euros seven years later? In one way, yes. But in another way, the value of that money has decreased every year.

While your money is sitting there, it’s slowly being eaten up by inflation. Your million euros can buy less than they could in 2014. To be able to buy the same things you could then, you would need to have 1,055,093 euros in 2021.

We can’t control inflation, but we can protect our capital from it. The good news is your money can do that on its own, when it’s invested. We want to teach you how to do that.

What you’ll learn in this introduction:

  • Why investing is necessary
  • What you can expect from the rest of our lessons

Isn’t a savings account safer?

That’s the most obvious question. Investing is a risky activity, and you could just put the money in a savings account, right?

You’re right in that investment in securities is risky and does not guarantee stable growth — both sharp ups and unexpected downs can easily happen. There are no guarantees in investing.

So, yeah, a savings account might seem a good option: governments usually guarantee deposits up to a certain amount. In most European countries, including Germany, France and Spain, it’s 100,000 euros. And the interest rate should protect against inflation, right?

It should, but not these days.

“When interest rates are low — and right now they’re at record lows or in some cases even negative — and inflation continues to exist, the money you have in your savings account will still lose value. Often, you’re also barred from withdrawing the money for a period of time in order to lock in a more favourable interest rate.”

So there is no 100% safe way to grow your money faster than inflation. Investing, when done right, is still your best option.

To be clear, we’re not encouraging you to give up savings accounts and spend all your money on shares. On the contrary: a savings account is still a good idea. But the most efficient (and the safest) way to increase your investment is to split it into several parts.

Over the course of the next few chapters, we’ll walk you through the key terms and definitions of investing. You’ll learn about stocks, bonds, and everything in between. We’ll explain stock exchanges, brokers, why stock prices change and we’ll even walk you through the process of building a portfolio and figure out your risk appetite.

Before you start investing, make sure that:

  • You have no high interest rate debts and loans.
  • You have a financial cushion: a reserve supply of money that you will not invest.
  • You are ready not to touch the investment for at least six months, or even better, a few years.

Let’s get started.

Lesson 1

What is a stock exchange