What is investing, and why is it an option for you?
Keytrade Bank
keytradebank.be
January 28, 2025
3 minutes to read
Thanks to online banking, investing is more accessible than ever. But why should you get started? If you have ever considered growing your wealth, securing your financial future faster or simply want to find out more about what investing is and how it works, read this article to find out what you need to know.
How does investing work?
In simple terms, investing involves placing your money in dynamic financial assets, such as shares, bonds, real estate and funds. The aim is to make a profit to ensure that everyone who invests also receives a share of the profits. However, it goes without saying that to generate a profit, the value of your investment must go up.
Suppose you buy an exclusive painting by a young, promising artist. If the artist were to become world-famous and their works were to increase in value, your painting may quickly be worth a lot more. You may even be able to sell the work of art at a later date for a significantly higher sum than your original investment.
Investing is a (calculated) risk
Yet the opposite is true, too. If the artist's works turn out to be a flop, your painting could also fall in value. In other words, your investment would be a failure.
When you compare this approach to savings – where you accumulate interest while your money stays in your account – investing will always involve an element of risk. The amount you invest will constantly fluctuate both upwards and downwards,
meaning it should therefore be a long-term investment. If you have made the right investment choices, the returns may only become apparent over several years. That means patience isn't just a virtue when investing – it's a necessity.
Yet investing still involves calculated risks. However, you can minimise the risks by considering the following points:
- Do you prefer to take a defensive, neutral or offensive approach to investing?
- Active versus passive investing: would you prefer to explore the investment market yourself or let someone else invest on your behalf?
- Do you want to invest in individual shares or funds, or would you prefer to limit the risks by opting for ETFs (exchange-traded funds) and (index-linked) trackers?
"You learn by doing"
This proverb is particularly true in the world of investing. Just as you can keep the risks to a minimum at all times, you can also immerse yourself in the investment world at your own pace. Although you may be wary about experimenting with trackers early on, you may well feel you have enough experience to start trading yourself after a few years.
Why should you invest?
Now that you know what investing is and what the potential risks are, why is investing worth considering?
Allow your investment to grow exponentially
The main reason why investing is an attractive option is that it offers the potential for your assets to grow exponentially. Thanks to the effect of compound interest, you continue to invest your accrued return year after year – as long as it goes up in value. This assumes, however, that you leave your investment untouched. This is not the case with traditional savings, as your savings plan applies the predefined interest rate.
Guard against inflation
Recent history has shown that inflation can surge so quickly that savings rates (almost) amount to nothing. Investing offers an opportunity to maintain or even increase your purchasing power, and this is precisely because the returns are often higher.
Aim high, higher and even higher
What are your long-term financial goals?
- Do you want to set aside a nice sum in the next ten to twenty years for yourself and/or your family?
- Do you want to build up a comfortable budget for your retirement?
- Do you want to become financially independent as quickly as you can?
- Or do you want to shorten your career by a few years?
Investing can play an important part in all of these scenarios, no matter how big your dreams.
How to get started with investing
The proof of the pudding is in the eating. If you feel it is time to put the knowledge you've learned to the test, we'd be happy to guide you through your first steps in the world of investing. But what's the best way to get started?
Step 1: Set your goals
What do you want to achieve with your investment plans? What is your end goal, and when do you envisage achieving it? Only by knowing your end goal financially can you plot your path to get there.
Step 2: Develop a strategy
A well-thought-out investment plan increases your chances of success. Determine the investor profile that suits you best. Which types of investment are more or less attractive in your case? Do you want to exclude certain types of companies? Do you want to invest in commodities or only in 100% sustainable initiatives? If you have little experience in investing, we would always recommend you seek thorough advice in advance.
Step 3: Choose your preferred investment partner
Which party do you feel most comfortable starting your investment journey with, and which platforms and technologies do they use to support you?
Step 4: Start small
If you have made your choice, we wish you good luck and hope you enjoy the ride. Invest money that you're willing to lose and stay within the realms of what is possible to start with. This will allow you to systematically expand your investment budget at a pace that suits you.
Step 5: Don't give in to impulse
One golden rule is that you shouldn't panic at the first sign of a dip, nor should you cash in as soon as you see your investment rise significantly for the first time. As we mentioned above, your investments are something for the long term. It's therefore a good idea to keep an eye on trends and developments over several years.
Now that you're all set…
You now know exactly what investing is all about and why you should at least consider it as an option. Investing offers a unique opportunity to turn the financial future of your dreams into reality faster.
At Keytrade Bank, we are ready to help you in every way we can, both in terms of knowledge, digital tools and specific investment plans. Start exploring today!
