Saving means not spending a portion of your income, in other words putting some money aside. Your money is therefore safe and available, but its value decreases each year by the level of inflation. To guard against this, you can invest these savings in financial products that fit your needs. Investing entails a certain degree of risk but offers the potential for medium- or long-term financial gains.
Define your requirement
Your savings are the portion of your income that is not spent today. Building up savings allows you to accumulate assets*. Therefore, as much as possible, when balanc ing your budget* make sure you have enough savings to eventually achieve your goals.
The first question to ask yourself is what are you saving for:
- for example, are they precautionary savings, available* at any time to deal with an unexpected expense in everyday life?
- project savings, for example to purchase a vehicle or a home?
- income or future capital savings, for example to supplement the payments you receive when you retire?
Save regularly
By putting money aside on a regular basis, you avoid having to struggle to save when you need money (precautionary savings), which can create pressure for you in your day-to-day consumption. As part of a medium to long-term plan, saving – and therefore investing – regularly will also help you avoid certain behavioural biases, such as trading too often and/or entering the stock market at the wrong time. By saving regularly, you build up financial wealth that increases in value and protects you against the loss of purchasing power* caused by price increases.
Set your target
Achieving your goals depends mainly on four variables:
- the amount that you save regularly,
- the amount of additional cash,
- how long you plan to save, and
- the expected performance* of your savings.
To help you in this process, many simulators* are available for free online. For long-term savings such as retirement savings, and to calculate your desired pension supplement, you can refer to the pension income estimates* made by public authorities.
Define your investment horizon
To take full advantage of this allocation, i.e. to obtain the expected performance needed to finance your goals, you must consider your savings unavailable during the entire investment period. Indeed, the risk* and the return* on your investment also depend on the length of the investment. The longer your investment horizon, the more you can broaden your investment opportunities and the higher the expected performance of your investment can be with better risk control.
Time is your ally
When you begin to save early, you extend your investment horizon, and the amount you need to save to finance your goals is less. The investment period* also affects the behaviour of some investments: for example, the risk of loss on investments in stocks* decreases as the investment period increases. A suitable investment for financing a long-term goal does not involve a series of short-term investments.
The advantages of diversification
Diversifying means reducing the overall risk of your investment allocation by including financial assets that do not vary in the same direction. Be sure to balance your investment allocation, for example by diversifying the asset classes, geographic regions and business sectors. Along with the investment period, diversification of your assets has a significant positive impact on your investment’s potential performance.
Identify the risks you are willing to take
An investment that does not explicitly have a capital guarantee entails a certain degree of risk. Before you invest, you should define your risk profile, which includes, among other things, your ability to incur losses and your risk tolerance*. This is a delicate exercise because it involves not only objective factors, such as your financial situation, but also subjective, emotional factors.
Learn what investment solutions are available to you
The financial universe may seem abstruse and complex. Your entire investment approach is based on how well you define your requirement. There are information sites* where you can find educational materials and high-quality impartial information appropriate to your level of knowledge. Your friends and family can also share their experience, and financial advisors* can help you clarify your needs and find suitable personalised solutions.
Play an active role during the meeting with your financial advisor
Before you invest, your financial advisor should ask you questions about your occupational, personal and financial situation, investment objective, saver profile, knowledge and financial experience. When you invest, for example by purchasing shares in a company, you finance activities that contribute to social and economic life. Based on the saving solution you choose, your investment will, to some degree, support the development of employment, innovation, the transition to the green economy, and so on.