How to invest your money in Belgium

Why you should invest your money

The financial future of young Belgians, millennials and Gen-Z, is under threat. Historically there's been a strong reliance on the state to fund our retirement. However, our state-funded pension systems are under increasing pressure due to changing demographics. And our political leaders are not doing what is necessary to prevent a pension crisis.

We need to make our savings work for us in order to set ourselves up for the future and take control of our retirement. We also know that saving accounts are not sufficient and interest rates are at historic lows. With inflation being above interest rates since 2008, this means that every year, we lose money if it’s not put to work.

The solution is to take matters into your own hands by investing your savings. As a potential investor, there are many reasons why investing can be beneficial for you. Let's go through some of the benefits of putting your money to work.

Long-term wealth creation

Young investors have a longer time horizon before retirement, which means they can afford to take on more risk and withstand short-term market fluctuations. This enables you to potentially reap the benefits of higher-risk, higher-reward investments such as stocks. The long investment horizon provides the opportunity to recover from market downturns and capitalise on long-term growth trends.

Investing in stocks supports the growth of companies, which, in turn, contributes to overall economic growth. By investing in businesses, you become part-owner and participate in their success. This not only benefits individual investors but also contributes to the prosperity of the economy.

Technical innovations have increased productivity and efficiency, which in turn has lead to positive economic growth over the last 40 years (before as well). The graph below, which shows the evolution of the global stock market since 1979 through the MSCI World index, clearly shows the tremendous growth the last decades. Investing in the global stock market is a way to benefit from this growth. We'll look further into investing in ETFs down below.

Steps to start investing

The process can be boiled down to five steps:

1. Set your financial goals
2. Determine your budget and set aside emergency savings
3. Assess your tolerance for risk
4. Choose your investment strategy
5. Select an intermediary (bank, broker, or investment app)

Step 1: set your financial goals (short-term, medium-term, long-term)

This is an important point. Why are you investing your savings? Is it for your retirement, to make the most of your savings, to buy a house, to save for your children or to live off your investments? Setting clear goals will help you develop an appropriate investment strategy:

Short-term goals (0–2 years)

These goals are achievable within a short period and typically involve smaller amounts of money. Examples include:

• Building an emergency fund
• Paying off small debts (like a credit card or small loan)
• Saving for a holiday or a gadget

Mid-term goals (2–5 years)

These goals require a bit more planning and larger sums. Examples include:

• Saving for a down payment on a home
• Paying off some debt
• Buying a car

Long-term goals (5+ years)

Long-term goals are those that involve financial planning and commitment. Examples include:

• Saving for retirement
• Building wealth through investments
• Planning for your children’s education

Step 2: determine your budget and set aside emergency savings

Before you start investing, determine your budget to figure out how much you can actually invest. Then ensure you have an emergency fund in place and place this money in a savings account which is easily accessible to you. This fund should cover at least three to six months' worth of living expenses. It acts as a safety net to protect you from unexpected financial setbacks and means you won't need to dip into your invested money to cover these costs. Learn more about how you can save for an emergency fund.

Step 3: assess your risk tolerance

This is usually a tough one. Your risk tolerance is your willingness to take on risk in pursuit of higher returns. Some people are comfortable taking on a high level of risk, while others prefer to invest in lower-risk assets. Your risk tolerance will depend on your financial situation, your investment goal but more importantly your personality. You also need to measure your capacity for taking risk. This refers to the amount of risk you can afford to take on without jeopardising your financial situation.

Step 4: choose your investment strategy (active vs passive)

Once your ready to take action, you'll have to decide what type of investing suits you best. Let's take a look between both active and passive investment strategies.

What's active investing?

Active investing is when you try to beat the market's average returns by actively buying and selling investments, rather than simply holding them long-term. Think of it like being a chef who's constantly tweaking their menu versus someone who sticks to tried-and-true recipes. Active investors frequently buy and sell stocks, bonds, or other investments. For that, they have to monitor the markets closely and analyse companies in detail. And they try to time their purchases and sales based on market conditions. This is called market timing.

The main goal is to outperform passive investment strategies like buying and holding ETFs index funds. However, research shows that most active investors actually underperform the market over long periods, especially after accounting for higher fees and trading costs. More on why below.

What's passive investing?

Passive investing, also known as index investing, is essentially a "buy and hold" strategy where investors aim to match the market's returns rather than beat them. Imagine it like setting your investment on autopilot – you choose a destination (your financial goals) and stick to the course with minimal adjustments. So instead of constantly trying to be smarter than the rest as with active investing, you simply follow the market. You may heard of "hangmatbeleggen", which is another term for passive investing.

Instead of trying to guess which individual companies or even which countries will perform best, a passive investor might buy a global equity index fund that includes thousands of companies across the world. For instance, rather than trying to decide whether to invest in Apple vs Samsung, or whether Japanese stocks will outperform European ones, you'd own small pieces of all of them.

The most common form of passive investing is buying ETFs, which automatically track specific market indexes like the S&P 500. These funds simply mirror the performance of all the companies in that index.

Passive investing is a proven way to grow your wealth. It turns out that it's usually more profitable to invest in the whole stock market, rather than trying to time buying and selling individual stocks. Instead of finding the needle in the haystack, you buy the entire haystack. You're effectively becoming part owner of thousands of stocks across the world, index investing lets anyone earn a dividend off of the growth of the world economy.

Step 5: select an intermediary (bank, broker, or investment platform)

You've chosen your investment strategy and now it's the time to decide an intermediary to put your money to work. With the rise of online trading platforms, investing in the stock market has become more accessible and cost-effective than ever before. There are various investment apps that offer user-friendly interfaces and low trading fees, making it easier for young Belgians to enter the market. This accessibility empowers you to start investing with smaller amounts and gradually build your investment portfolio.

Your bank is probably not the right place

Banks promote and sell actively managed funds. Essentially, it's where a fund manager working at a bank tries to be "smarter" than the market. It usually doesn't work. For instance, ESMA, the European regulator for the financial markets, found out that 75% of active funds perform worse than their benchmark index. The main reason is the high cost associated with active investing. Active funds are expensive, as the fund managers, analysts and other specialists at the bank need to be paid. You, as the investor, bear this cost. Yet all this effort doesn't translate to higher returns. In fact, it does the opposite.

There's no question, many choose to play it safe when investing their money. And nothing seems safer than your bank that you've had your accounts for years with, for example your savings account. But when it comes to investing, you'll be leaving a lot of money on the side. Banks are waking up to the fact that many people want to invest in ETFs themselves and follow a passive strategy. With this in mind, some offer brokerage services, although often half-heartedly since it cannibalises the hefty profits they make from their active funds.

Manage your investments yourself with a broker

To buy stocks and ETFs, you need to go through an intermediary called a broker. A broker gives you access to the different stock exchanges in the world.

There are many different ones with their own pros and cons. We've made a detailed comparison on the best brokers in Belgium. As there are many options available to, it can be difficult to pick the one that makes you feel most comfortable with. One of the most important factors to consider is transaction costs. When investing with small amounts transaction costs will have a relatively bigger impact than when investing with large sums. You also need to consider the security of your assets.

The advantage of a broker is that you're in full control. You can choose exactly what you buy, and when. But that also comes with a lot of responsibility and takes time to do well. You need to figure out the best investment portfolio that matches you and your goals, understand the tax system, monitor and rebalance your portfolio, keep your emotions in check...

Carefree investing with Curvo

We created Curvo to address the challenges of investing through a broker. We are convinced that passive investing through ETFs was the best way for us (and most Belgians) to grow their wealth. So we started investing through a broker. Our founder Yoran spent hours researching and figuring out how to build an optimal portfolio to prepare for his financial future. He read books, scoured the web and got lost on Reddit. Finding the right resources was challenging.

From this experience, he realised why none of his friends were setting up their own portfolios of ETFs through a broker: it's too complicated. At the same time, we've seen that index investing is such a powerful tool to grow our wealth. So it made sense to build something to solve this problem.

We believe that investing is an important tool to improve our financial well-being and to prepare for our future. We are building Curvo to fulfil that vision, by making good investing easy and accessible to all:

• Invest in a diversified portfolio set up for you. Simply answer a short questionnaire and you can start investing in a passive portfolio of index funds that matches you and your goals.
• Automated savings plans. You can set up a monthly contribution from €50. That means that money is automatically invested for you in your portfolio. Adopt the best saving habits, without effort!
• Fractional shares. All the money you send towards your portfolio is fully invested. No cash is left on the side.‍
• Multiple portfolios: Choose to invest in different portfolios based on your goals. You can also set up portfolios for your children.
• No TOB 🇧🇪. The funds in the portfolios aren’t liable for the Belgian transaction tax (or "TOB"). This saves you between 0.12% and 1.32% compared to a broker for every time you invest or sell!
• Invest sustainably. Your investments focus on one guiding principle: don’t invest in companies that are considered destructive to the planet. Companies from sectors like non-renewable energy, vice products, weapons and controversial companies are excluded from your portfolio.‍
• Project yourself into the future. You can see how much your portfolio is expected to be worth in the future. You can answer questions like “how will increasing my monthly contribution by €50, €100 or €200 affect my long-term savings?” to give a concrete idea for the “future you”.

ETFs: probably the best investment for you

There's a wide variety of investments for Belgians and we understand it can get confusing to know where to start. There are many ways you can invest your money, going from stocks, to wine, real-estate, art and even digital art through NFTs. But not all are equally good. Many are too risky, or do not yield sufficient returns. When investing for your future and over the long-term, it's important you make a rational and well-thought out decision.

Here's look at some of the options:

At Curvo, we fundamentally believe in ETFs which we believe are best suited for putting your money to work over the long-term.

What's an ETF?

As we saw above, passive investing is a smart strategy to make the most with your money. An ETF (or exchange-trade fund) is a collection of tens, hundreds, or sometimes thousands of stocks or bonds. This spreading is one of the most attractive aspects of owning an ETF compared to individual stocks and bonds. By investing in a single ETF, you become invested in thousands of companies in one go. The majority of ETFs are designed to track a market index, which is why they're also called trackers.

The style of investing based on indexes is called index investing (also called passive investing), as you typically purchase and hold your investments over the long-term. When passively investing, you choose to ignore day-to-day price changes knowing that the market will keep growing long-term. Data shows that this strategy is most likely to give you the highest return.

Here are some reasons why we fundamentally believe in ETFs:

They are low-cost

Index investors pay low fees because ETFs are very cheap to run. It's simple to track an index: all that is required is buying the stocks in the index, and update when the index changes. It doesn't require expensive analysts or other specialists.

They are diversified

One of the goals of index investing is to diversify as much as possible. Through diversification across many countries and sectors, you eliminate unnecessary risk. And you also benefit from the growth of the best companies in the world, not just the large German, French or American companies you know. By investing in as many companies as possible, you're almost sure of including the winners, namely the minority of stocks that are responsible for the majority of the returns.

Rooted in the real economy

Most index funds invest either in stocks or bonds. Those are backed by real companies, with real factories, employees, intellectual property, and so on. This is unlike, for example, the crypto space, where the value of a currency or token is mostly determined by its potential rather than by concrete applications.

Buy and sell whenever you want

ETFs are very easy to buy and sell. If you wish to, you can trade any ETF within minutes. In finance jargon, we say that ETFs are "liquid". This is an advantage compared to other types of investments such as real estate or art. For instance, when selling a house, it can take a long time before finding the right buyer.

Invest with low amounts

An advantage with ETF investing is that you don't need a lot of capital to get started. You can even invest with as little as €50. This makes ETF investing possible for everyone, especially young people who just started their career and want to grow their wealth by putting their savings. In contrast, real estate is much less accessible. Just the down-payment for a property requires several tens of thousands of euros.

Tax-efficient

In most countries, investing in the stock markets is tax-efficient compared to other types of investments. In Belgium, we don't even tax profits from investments in stocks, making index investing particularly tax-efficient.

Diversify your investments

A good portfolio should have several properties to ensure diversification, minimise risk, and optimise returns.

Here are some important notes to consider:

• Diversification: A well-diversified portfolio covers different asset classes (stocks, bonds, commodities, etc.), sectors, industries, and geographical regions. This spreads risk and reduces the impact of any single investment on the overall performance.
• Low expenses: Choose ETFs with low expense ratios, as high fees can significantly erode long-term returns. This is an important reason to choose index ETFs rather than actively managed funds.
• Tax efficiency: Some ETFs are more tax-efficient than others. So choose wisely to help minimize your tax burden. We've written a guide on taxes you should be aware of as a Belgian investor.
• Asset allocation:  Your portfolio should be built based on your goals, risk tolerance, and time horizon. This involves balancing between stocks and bonds, depending on your individual circumstances.

By carefully considering these properties, you can build a well-rounded portfolio that is tailored to your investment needs and objectives. We suggest you to take a look at the portfolios Curvo offers which can serve you as a compass if you decide to build your own portfolio.

Understanding Belgian taxes

Try to reduce the tax burden on your investment returns. Every euro paid in taxes is a euro less in returns.

If you decide to go for ETFs, try to go for accumulating ETFs rather than distributing ETFs. This way the dividends get reinvested automatically. In Belgium, this saves you on the 30% dividend tax.

The Belgian taxman also levies a 10% capital gains tax when selling an ETF.

Finally, there is also the TOB (Belgian transaction tax) to consider.

We've written about the taxes you need to consider as a Belgian investor if you want to dig deeper.

First steps to put your money to work

Start small

As you learn, begin with amounts you're comfortable with. And as you get confidence, you can slowly increase how much you invest.

Consistency is key

Compound interest is a fundamental concept in investing and is often referred to as the "eighth wonder of the world" due to its powerful effect on the accumulation of wealth. Unlike simple interest, which generates earnings solely on the principal, compound interest accrues on both the principal and the previously accumulated earnings. Over time, this leads to exponential growth of money.

When you're saving, the exponential growth of compound interest will significantly boost the total return on savings or investments. Invest regularly to build habits and take advantage of compounding. Even if you save a relatively low amount every month, the effects of compounding can lead to substantial growth over the long term.

Someone who invested €200 every month for 45 years in a global stock ETF, would have earned €1,500,000 on an investment of €110,000.

Always be learning

Looking back at our education, we realised that we were never taught how to manage our own money. We believe that everyone's financial lives will improve if they are armed with the right knowledge. So before diving into the stock market, it's crucial to educate yourself about investing. Learn about the basic concepts, terminology, and different investment strategies.

Common errors investors make

Not diversifying enough

Belgian investors often make a key mistake: they don't diversify. Many stick to familiar assets like local Belgian stocks they know, the BEL 20 or real estate. This approach raises the risk of big losses if these assets falter. Spreading investments across various assets and regions can lower risk and boost returns.

Picking tax-inefficient investments

Belgium's investment tax system is complex. It includes taxes on dividends, transactions, and capital gains in some cases. There's also a wealth tax for large securities accounts. Picking the wrong investments or ignoring these taxes can hurt returns.

Focusing only on short-term gains

Many investors chase short-term profits, driven by market trends like AI or a fear of missing out. This often leads to buying and selling too frequently, incurring high costs and taxes. A long-term strategy usually offers better results and eases the stress of market ups and downs.

Ignoring fees

Hidden costs like management fees, trading commissions, and custody fees can eat into returns. Taxes on dividends and interest also cut profits. Many Belgian investors overlook these when making decisions, leading to poor performance. It's vital to check fees and choose tax-efficient investments.

Overlooking risk tolerance

Not understanding personal risk tolerance can lead to bad decisions in downturns. Some Belgian investors jump into high-risk options without knowing the risks. Others play it too safe and miss growth chances. It's crucial to evaluate goals, time-frames, and loss tolerance before investing.

Our conclusion

With the increasing uncertainty surrounding state pensions and the diminishing returns of traditional savings accounts, investing has become an essential strategy for young Belgians to secure their financial future. By setting clear financial goals, understanding your risk tolerance, and adopting a well-thought-out investment strategy, whether through ETFs, real estate, or other types of investments, you can build long-term wealth. Remember to diversify your investments, stay consistent, and remain mindful of fees and taxes.

Whether you choose a bank, broker, or a user-friendly platform like Curvo, the key is to start small and stay committed. Investing is a journey, and by taking the first steps today, you’re paving the way for a more secure and prosperous tomorrow.