Saving and investing: working in tandem to make your money work harder
How to combine saving and investing
Start off by saving at your own pace until you’ve put away the equivalent of about three to six months’ salary. Having a savings buffer like this in place enables you to cover any unexpected expenses. And if you start a pension savings scheme as well, you’re thinking even further ahead and covering your retirement.
However, if the only thing you do is save, you run the risk of your money losing value in the longer run because of inflation. Things become more expensive year after year, meaning you can afford to buy less with the same amount of money. To avoid that situation, you can always save and invest at the same time.
Why combine saving and investing?
By combining saving and investing, you protect yourself financially over both the short and long term. Your savings buffer covers the short-term, while your investments can prevent inflation from nibbling away at your purchasing power.
Let's take a closer look at the effect of inflation.
- Suppose you have 10 000 euros in your savings account
- Saving for a year at an interest rate of say 1% earns you 100 euros in interest
- If prices go up by 4% over the same period, the amount you’ve set aside is now worth 400 euros less in terms of purchasing power
- The outcome: 10 000 + 100 - 400, i.e. your 10 000 euros is only worth 9 700 euros in purchasing power within barely a year
As the years go by, therefore, your savings could start lagging further and further behind inflation. By investing your money, you can try to counter that loss of purchasing power. Of course, this also entails certain risks, but over a period of five years or more, the stock market has pretty much always outperformed inflation in the past.
True or false: which statement about investing do you believe?
Not true. In fact, the younger you start, the longer you benefit from the ‘interest-on-interest’ effect. That’s because the return generated in the previous year can itself generate a return the year after. In good stock market years, your capital grows exponentially. Another thing is that it’s possible to start investing with very small sums of money at KBC, like investing your spare change.
You’re free to build up that knowledge if you want, but it’s not necessary. When you choose one of KBC's investment plans, you invest in a fund that’s been put together by our experts, who’ll also actively manage it for you. This relieves you of the task of responding to changing market conditions, which gives you more time to get on with other things. At the same time, you remain in control – you can at any time adjust the amount you invest each month, you can pause it or even stop it.
You can take more or less risk with your investments. If you prefer to play it as safe as possible, we’ll identify your preferences through your investment profile. We’ll then invest on your behalf in a ‘defensive’ fund that entails less risk than average. It’s also a good idea to invest periodically (e.g., monthly) for a longer period of time. By adopting such a staggered approach, you always end up investing at average prices.
What’s KBC’s approach to saving, investing or both combined?
KBC has long been a bank for savers and investors. Besides our savings accounts, you can also fall back on our years of expertise in investing:
- A strategy that takes account of your changing needs
- Start small, for example, by investing your spare change
- A fully digital approach or with personal advice
Itching to give it a go? Check out the different ways for beginners to start investing.
