How to invest safely: 8 rules that lower your risk
You want your savings to grow. You also never want to open your banking app and find half of it gone. That's what most people mean by safe investing.
No investment is completely risk-free, and most advice on investing safely stops at "spread your money" and "think long term" without saying how much either one helps. You can't remove risk, but you do decide how much of it you carry. Eight rules make the difference, and some of them can be measured. Since 1970, the MSCI World, the best-known index of the world's stock markets, never lost money over any period of 15 years or longer.
Safe investing means choosing which risks you take
Safe investing means carrying only the risks that pay you, and keeping the rest small. Every investment that earns a return asks you to carry some risk, which is why there is no return without risk.
Keeping all your money in cash doesn't escape risk either. A savings account swaps the risk of a falling market for the risk of rising prices, as inflation eats your savings a little every year. Of all the risks of investing, market risk is the one you get paid for. The eight rules below shrink or remove the others.
What are the safest investments?
The safest investments are the ones whose value moves the least: a savings account, then term accounts and state bonds, then bond funds. They're also the ones that grow the least. So the safest investment for you depends on when you need the money.
| Investment | What can go wrong | If the provider fails | Suits money you need in |
|---|---|---|---|
| Savings account | Inflation reduces what your money can buy | Deposit guarantee up to €100,000 per person per bank | Any time, including your emergency fund |
| Term account or state bond | Your rate is fixed, and inflation can rise above it | Term account: deposit guarantee up to €100,000. State bond: the Belgian state owes you the money | A fixed date, one to ten years away |
| Government bond fund | Its value falls when interest rates rise | A separate depositary holds the fund's assets | Three years or more |
| Mixed portfolio of shares and bonds | It falls in a crash, but less than shares alone | A separate depositary holds the fund's assets | Five years or more |
| Global equity index fund, such as one tracking the MSCI World | It can halve: the MSCI World fell 55.7% in euros between August 2000 and February 2009 | A separate depositary holds the fund's assets | Ten years or more |
| Single shares and crypto | They can go to zero | Investor protection never covers a fall in price | Only money you could lose completely |
A fund's depositary is a separate institution that keeps the shares and bonds the fund owns. If the fund manager goes bankrupt, those assets aren't part of the bankruptcy.
8 rules for investing more safely
1. Build an emergency fund before you invest
An emergency fund comes first because being forced to sell at the wrong moment is one of the easiest ways to lose money. Your car breaks down during a crash, and you sell shares at a loss to pay for it. Three to six months of your expenses on a savings account prevents that. Our article on how big your emergency fund should be helps you find your own number.
Once that buffer is in place, every euro you invest is a euro you can leave alone when markets fall.
2. Only invest money you won't need for at least ten years
Time is the strongest safety measure you have, and it's the one we can put a number on. We looked at every month since December 1969 in Curvo Backtest, in euros with dividends reinvested, and asked a simple question: if you had bought the MSCI World index that month and sold it a set number of years later, how often would you have lost money?
| Holding period | Share of periods with a loss | Worst result |
|---|---|---|
| 1 year | 26.0% | -39.3% |
| 3 years | 21.1% | -52.3% |
| 5 years | 22.1% | -40.6% |
| 10 years | 7.3% | -35.6% |
| 15 years | 0% | +25.7% |
| 20 years | 0% | +64.3% |
Over one year, you lost money about one time in four. Over 15 years or more, you never did. That's why you should only invest money you won't need for a long time, and why how long you stay invested decides so much of your risk.
The table only protects you if you stay invested. Selling during a crash turns a temporary fall into a real loss. An investor who sold the MSCI World in February 2009 locked in a fall of more than half. One who held on was back above the 2000 peak by 2014.
3. Spread your money across the whole world
Spreading your money across thousands of companies removes the risk that one bad company ruins your portfolio. Single companies do go to zero. Lernout & Hauspie collapsed in 2001 after accounting fraud, and Kodak went bankrupt in 2012. Shareholders in both lost everything.
Curvo co-founder Thomas learnt this with his own money, and tells the story in his book, ETF Investing in Belgium. In late 2016 he was sure Fitbits would be the Christmas present of the year, so he bought Fitbit shares on 4 November. By 5 January 2017, they had lost about 40%. The story sounded right, and one company still let him down. In a fund spread across 1,500 companies, a fall like that barely shows.
The MSCI World index holds about 1,500 companies in 23 developed countries. When one of them fails, you barely notice. Diversification lowers your risk without lowering your expected return. Our guide shows how to build a diversified ETF portfolio, and our comparison of the BEL 20, MSCI World and S&P 500 shows what staying close to home costs.
4. Match your mix of shares and bonds to when you need the money
The closer the date you need the money, the more of it belongs in bonds. Shares grow more over the long run but can fall by half in a crash. Bonds grow less but fall far less. Money for a house you want to buy in three years doesn't belong in shares.
A simple way to think about it is to split your money by goal. Your pension in 30 years can sit mostly in shares. A deposit for a flat in four years needs bond funds or a savings account.
Many investors skip bonds because they return less than shares. But the right mix depends on your goals and on how much risk you can stomach, so there's no portfolio that's best for everyone.
When you sign up to Curvo, we ask you a few questions about your goals, how long you want to invest for and how you'd react to a fall. Based on your answers, we match you with a portfolio. If your horizon is short or you prefer less risk, that portfolio includes bonds.
5. Invest a fixed amount every month
Investing a fixed amount every month takes the hardest decision, when to buy, out of your hands. You buy when prices are high and when they're low, and you never have to guess which one today is.
If you already have a large sum, investing it all at once has historically earned more, because markets rise more often than they fall. Our comparison of DCA and lump sum investing shows the data, and also why many people still spread a large sum to avoid the regret of investing it all just before a crash. For money you save from your salary each month, periodic investing follows naturally.
6. Keep your costs low
Costs are the only loss that's certain. Markets go up and down, but you pay costs every single year. Say your investments return 6% a year before costs. After 30 years, €10,000 grows to about €54,000 in a fund that charges 0.2% a year, and to about €32,000 in one that charges 2%. The expensive fund doesn't make you any safer for it.
Look at three costs: the entry fee on each deposit, the transaction fee and stock exchange tax on each purchase, and the yearly charges of the fund. Our guide to the costs of an ETF explains each one.
7. Choose a licensed provider that keeps your investments separate
Three different things protect your money when a bank or broker goes bankrupt, and each covers something else.
- The deposit guarantee covers cash on a bank account, up to €100,000 per person per bank. In Belgium the Garantiefonds pays it. Every EU country has the same €100,000 limit.
- Investor protection covers shares, bonds and funds that a failed provider can no longer give back, up to €20,000 per person per provider in Belgium. Every EU country has a scheme of at least €20,000. It never covers a fall in market prices.
- A separate custodian keeps your investments outside the provider's own accounts. If the provider goes bankrupt, its creditors can't touch them, and you get them back. This, not the €20,000, is what protects most of your money. Our article on counterparty risk goes deeper.
Before you send money anywhere, check that the provider is licensed. In Belgium, search the FSMA's check your provider page. Elsewhere, ask the national regulator: the AFM in the Netherlands, Consob in Italy. The same question applies inside the fund itself, where a physical ETF owns the shares it tracks.
At Curvo, your investments are held by a separate custodian, the Stichting Noordnederlandse Beleggersgiro, and you can read how the custodian works and how your money is kept safe.
8. Don't invest in what you don't understand
If you can't explain an investment in two sentences, leave it alone. Be most careful with products that promise a high return with low risk, with offers from someone who calls you out of the blue, and with whatever everybody is talking about this month.
Three warning signs should make you stop: a guaranteed high return, pressure to decide quickly, and a company you can't find in the regulator's register. The FSMA keeps a list of warnings about fraudulent companies. Hype is the legal version of the same risk: if you're tempted by crypto, read about the risks of investing in bitcoin first. And if someone promises to beat the market, our comparison of passive and active investing shows how rarely that works.
Which way of investing suits you?
Once you've decided to invest in index funds, there are two common ways to do it: buy ETFs yourself through a broker, or let an app like Curvo do it for you. Here's how each one handles the rules above.
| ETFs through a broker, yourself | Curvo | |
|---|---|---|
| Minimum to start | The price of one ETF share at most brokers | €50 |
| Cost on each deposit | A fee per order, plus 0.12% to 1.32% Belgian stock exchange tax (TOB) | None |
| Yearly cost | The ETF's yearly charges, often 0.1% to 0.3% | 1% up to €50,000, falling to 0.6% above €250,000, fund costs included |
| Matched to your horizon and risk | You decide | Yes, based on a questionnaire |
| Spread across the whole world | Depends on the ETFs you choose | Yes, index funds from Vanguard, iShares and Amundi |
| Invests automatically every month | Only if your broker offers a savings plan | Yes |
| Investor protection if the provider fails | The broker's home country, at least €20,000 | Dutch scheme, up to €20,000 |
| Your time | The most: you choose, buy and rebalance | Little |
Each way has a trade-off. Doing it yourself with cheap ETFs costs the least each year, but you carry every decision, and a fee of €5 per order is 5% of a €100 deposit. Curvo's yearly fee is higher than a cheap ETF's. That's the price of a portfolio that's built, spread and rebalanced for you, with no cost on each deposit.
Want these rules applied for you? With Curvo, you answer a few questions about your goals and how you'd react to a fall, and we match you with a portfolio of index funds spread across the world. You start from €50, with no cost on each deposit, and we invest every month and rebalance for you. See how Curvo works.
Summary: investing safely is a set of choices
No investment is without risk, so investing safely comes down to choosing which risks you carry. Keep an emergency fund, invest only money you won't need for ten years or more, spread it across the world, match your bonds to your deadline, keep costs low and pick a licensed provider that holds your investments apart.
That matters because doing nothing isn't safe either. Money left on a savings account for 30 years loses buying power to inflation every single year.
The next step is to pick the way of investing that fits you. With Curvo, the spreading, the mix of shares and bonds, the monthly investing and the rebalancing are done for you, and you can see how it works before you start.