Low interest rates combined with inflation makes your savings account a poor place to hold your long-term savings. It's almost necessary to invest your money if you want to grow your wealth. But with so many options out there, starting to invest can be daunting.
We go through the reasons why you should invest in the stock market, dig deep into how you can do this in Belgium, and we take a closer look at investing in ETFs.
Why you should invest in the stock market
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 in the stock market can be beneficial for you. Let's go through some of the benefits of putting your money to work.
Long-term wealth creation
Historically, the stock market has provided higher returns compared to other investment options like bonds or a savings account. By investing in stocks, you have the potential to grow your wealth over the long term as the value of your investments appreciates.
Invest in companies from across the globe
The stock market provides an opportunity to invest in companies from across the globe. This allows you to participate in the growth of global industries and economies, diversifying your investment exposure beyond your local market.
Ownership in companies
When you invest in stocks, you become a partial owner of the company. Companies issue stock to raise money in order to grow their business. As an investor, your stocks become more valuable as the company grows. On top of that, most companies share part of their profit with you through dividends.
Flexibility when investing
In finance jargon, the stock market offers high liquidity, meaning you can buy and sell stocks relatively quickly. This flexibility allows you to adjust your investment portfolio according to your investment goals. Compare this to investing in property where you can't sell a fraction of a house, but you can sell a single share of your stock.
Continuous growth of the global economy
Advances in technology have revolutionised industries, increasing productivity and efficiency. Innovations in areas such as technology, automation, artificial intelligence, and renewable energy have positively impacted economic growth by creating new opportunities and growing the markets. 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!
Before you start investing in the stock market
Here's a four step checklist to go through before you decide to start investing in the stock market:
Step 1: educate yourself
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. Consider reading books or reviewing online resources. For example, it's important to learn about taxes associated with investing. The Curvo Academy contains numerous resources to educate yourself.
Step 2: set investment goals
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.
Step 3: assess your tolerance for risk
This can be 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: establish an emergency fund
Before you start investing, ensure you have an emergency fund in place. 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.
How to invest in the stock market in Belgium
There are two ways you can invest in the stock market from Belgium:
- Investing through a broker, where you're responsible for your investments.
- Investing through an app like Curvo, where the investments are managed for you.
Investing through a broker
There are many brokers you can choose from in Belgium. They differ on:
- Their fees, as some are cheaper than others.
- How they handle taxes. In general, domestic brokers take care of declaring and paying all taxes you owe. Foreign brokers tend to shift the responsibility (and fiscal risk!) to you. You also need to declare foreign accounts to the Belgian National Bank.
- The ease of setting up an account. Some provide streamlined apps, whereas others only offer a clunky web application.
- Safety. Some brokers have had issues with the regulators.
Head on over to our guide to brokers for a comparison of the different brokers available in Belgium.
The dangers of stock picking
Some people manage their own portfolio of individual stocks. It's fun and exciting, it's easy to get started by installing any of the neo-broker apps, and you get to invest in the companies you love. But in all likelihood, your return will be inferior to a portfolio of index funds.
First of all, it is very time-consuming if you want to do it well. And you should if you're investing your life savings! You need to do the research to convince yourself that a particular stock is undervalued by the millions of investors around the world. You then need to decide when you will sell. It's best to decide this up-front to reduce the risk that you will make investment decisions based on your emotions. An investor's emotions are his worst enemy.
Also, when you buy a stock, you have to remember that there's another person on the other side of the transaction who's selling you their stock. Every transaction in the stock market is basically a trade in opposing views. This other person can be an individual investor like yourself. But only about 15% of trading happens by individual investors like you and I. So most likely, they're a professional at a hedge fund, a large bank or another financial institution. And there's a good chance that they have access to much better information than yourself that made them decide to sell the stock. Investing is their livelihood, and they have entire departments of analysts supporting him in his work. So from the moment you buy the stock, the odds of the bet turning in your favour are already against you.
Finally, only a relatively small number of stocks perform really well. Most stocks actually don't perform that well. And if you don't own the ones that do really well, you're much more likely to underperform the market. This skewness makes stock picking really hard.
Why ETFs are better
There are several reasons why investing in ETFs is one of the best ways for Belgians to grow their wealth, in comparison to trying to pick winners from the thousands of stocks available.
Low-cost
One of the problems associated with active investing are the high fees. Every time you buy or sell a stock, you incur a broker cost and taxes. ETF investors pay lower fees because index funds 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.
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 most of the returns.
You can invest with a small budget
Another advantage of ETF investing is that you don't need a lot of capital to get started. You can even invest with as little as €50 through apps like Curvo. 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.
They're tax-efficient
Belgium doesn't tax profits from investments in stocks, making ETF investing particularly tax-efficient for us Belgians. By investing in accumulating ETFs, you avoid the 30% dividend tax you have to pay when investing in individual stocks.
It simply works
Long-term index investing has worked in the past. And there's no reason it shouldn't work in the future. Just take the global index like the FTSE All-World Index as an example, which is composed of 4,165 companies across 49 countries. It has delivered an average yearly return of 8.4% since 2005.
The challenges of investing in ETFs through a broker
Even when investing in ETFs, there are challenges when using a broker:
- Asset allocation. You have to choose the ETFs and set up your portfolio of different funds to match your goals and level of risk. Are you just going to have stock ETFs in your portfolio, or allocate some space to bonds? How do you make that choice?
- Tax implications. It's vital to get a good understanding the Belgian tax system because you don’t want to pay unnecessary taxes or having to pay a fine.
- Learn how to rebalance. Over time, your portfolio may no longer be suited to your financial situation or time horizon. It's your responsibility to make sure your portfolio is aligned with your goals at all times.
- Brokers aren't aligned to your goals. Brokers earn money per trade. This means they make more from customers who trade often. So as an ETF investor with a buy-and-hold strategy, you're a bad customer for them. Their incentives are conflicting with yours.
That's why we built Curvo. By taking care of these complexities of investing, we make it an easy and smooth process for you.
Best way to invest in the stock market from Belgium: Curvo
We created Curvo to address the challenges of investing in the stock market from Belgium. We started investing through a broker ourselves. 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 investments through a broker: it's too complicated. At the same time, we've seen that ETF is such a powerful tool to grow our wealth. So it made sense to build something to solve this problem. Enter Curvo.
Diversified portfolio built for you
We understand that it's hard to build the portfolio that's right for you, so creating an account starts with answering a questionnaire on your investment goals and your appetite for risk. You’ll then be assigned the best portfolio of index funds that matches your goals and risk tolerance. Each portfolio is managed by NNEK, a Dutch investment firm supervised by the Dutch regulator (AFM). They're globally diversified and invest in over 7,500 companies.
Sustainability at the core
Your investments focus on one guiding principle: don’t invest in companies that are considered destructive to the planet. This means that sectors like non-renewable energy, vice products, weapons and controversial companies are excluded.
Proven track-record
The portfolios are built to stand the test of time. Each portfolio invests only in assets that are widely understood and that, through decades of research and usage, are predicted to earn significant returns over the decades to come.
Also suited for monthly investing
Through the Curvo app, you can set up a monthly savings plan where your selected amount is automatically debited from your bank account and invested in your portfolio at the start of each month. This way, it's easy to adopt the best saving habits. Also, you are not charged any transaction fees. Lastly, your investments through NNEK support fractional shares, meaning all your money is invested. So Curvo is ideal for monthly investing.
Summary
With the low interest rates and inflation, the savings account is not the best place to grow your wealth. We think good investing is important to prepare for your financial future. We discussed how Belgians can invest in the stock market.
We strongly believe that passive investing in ETFs offers the best means for most people to invest: it's less risky because it's highly diversified, it has a proven track record, and you can start investing from low amounts. But managing your own portfolios of ETFs through a broker can be challenging. So we built Curvo as the easiest way to get started.
Questions you may have
What are the best investment apps to invest in the stock market?
There's a variety of investment apps available to us in Belgium including:
We put together a guide which looks more closely at the different options to invest your money in Belgium in the stock market.
How to invest €1,000 in the stock market?
When investing smaller amounts, one option is to invest with a discount broker that has low transaction fees, and that supports fractional shares. But you need to be careful as some have a controversial business model through payment for order flow. Others lend out your shares to others, which poses a risk for your investments. Another option is Curvo, which has no transaction fees, supports fractional shares, and has none of these drawbacks.