Girls just want to have funds
I started working for a big German bank in 2014. This was not my first time of serving a financial institution. In fact, I had worked in the financial services industry on and off since age 26. Money, wealth creation and investing were not foreign concepts to me. “High net worth individual”? Of course I knew which group this referred to.
Interestingly enough though, I never associated wealth with myself. It never occurred to me to take the necessary steps to let my money work for me. I had been a “good girl” and stashed away cash at age 17 to 20 by investing money into a so-called “Bausparvertrag”. These are government-subsidized saving contracts which help you buy real estate (in Germany). I owned two of these! But when I moved to Berlin in 1997 to commence my studies, I terminated the real estate saving contracts. I took the cash to buy furniture for my first apartment. I suppose that was an “investment”.
Fast forward – it is 2014 and I took on the job at a big German bank. Again, I was surrounded by bankers. I had the impression that I too should adopt a more strategic approach to making my money work for me. I didn’t quite know how to start. Investing was a big black box to me: Did I need to own several thousand Euros to start investing? Which shares should I buy? Facebook stock? Where would I be able to buy these? At the Frankfurt Börse? Then, I did what I usually do: I asked my friends. To be more precise, my best (banking) friend and colleague Daniel. He suggested I invest in ETFs (exchange traded funds). ETFs? I had never heard of these financial instruments before. Here is what ETFs are all about: “It’s a pooled investment vehicle that offers diversified exposure to a particular area of the market.“ (ETF university, URL: http://www.etf.com/etf-education-center/21011-what-is-an-etf.html). Let me translate the investment lingo: An ETF does nothing else than to mirror the performance of stocks of a certain group of companies. These groups of companies could be: all of the companies listed on the German stock exchange (all DAX companies). Or you could buy an ETF that mirrors the performance of around 1650 big companies around the world (featuring the likes of Nestlé, Merck, Coca Cola, Citigroup, Shell …). In this case, you’d most likely start investing in the MSCI World ETF.
For those new to investing, there are several advantages to stashing away money into an ETF: you can set up a monthly ETF saving plan at as low as EUR 25 per month (if you choose to do so via a direct bank and are ready to set up your portfolio online by yourself). Also, you can up your monthly contributions if you want to, so there is a certain degree of flexibility which I like. Imagine you got a salary rise and are now able to put an extra EUR 50 per month into an ETF investment vehicle: You simply log into your direct bank investment portfolio account and make these adjustments yourself. It is THAT simple.
This is what I did: I set up my investment portfolio at a direct bank. Once I had received my log in data and my TAN (transaction numbers) list, I chose two ETFs to invest in. I allocated EUR 50 per month to each (the money automatically gets deducted from my banking account). I chose them based on my friend’s recommendation and my own research pertaining to the volume and the performance of the ETFs:
- MSCI World
- Dow Jones Global 50.
I will explain in a side note why the volume and the performance matters.
It is now 3.5 years later and I am proud to say that I never thought about dissolving my investment portfolio. Once in a while, I log into my account to see how the ETFs are performing. But that’s it.
Note that I did not start investing with a clear investment strategy in mind – I simply got started. With ETFs, you cannot go wrong. Why? Simply because investing your money at a 4-10% annual return (depending on the ETF you pick) is much better than leaving it in your saving account (with current interest rates of 0-0.5%). Putting your money into an ETF makes sense if you are ready to leave it there for a longer time period (let’s say ten years, twenty years). This way, you can benefit from compound interest effect. Also, the inevitable fluctuations of the stock market will not so much affect your investment as studies have shown that the even out over longer time horizons (which will also affect your ETF).
Investing in such a straight forward manner motivated me to learn more about it. At first, it might seem like a foreign language. You can take baby steps and learn how to do it. It is ok to start small. It is never too late to make your money work for you. We at Finelles are here to help you learn everything you need to about personal finance and investing.
Written by Caroline-Lucie Ulbrich
Finelles Founder. Coach and organizational consultant (ECB, Deutsche Bank and UBS).