The investment tips and tricks from HerMoney's Founder & CEO
Ever wondered how to start investing?
Investing used to be a scary word as, for many, it was connected with the fear of losing money. Nowadays, though, this paradigm is shifting and investing is making its way into the masses.
According to a Deutsche Bank survey, 61% of new retail investors are Gen Xers and younger Millennials under the age of 35. Investing has even made it to TikTok now, with the younger generations sharing their investing experiences. #Stockfluencers
Although that’s a great development, the question remains: How do you even start your investing journey – and how do you do it right?
To answer this question, we talked to no other than Anne Connelly – a true investment pioneer, a top manager in the mutual fund industry, and Founder & CEO of herMoney, a financial information platform that encourages women to take control of their money, start investing and become financially independent.
Read on to find out all the necessary basics to start your investment journey right from day one – from saving a “nest egg” to building your own investment strategy!
No time to read? Listen to the full podcast episode here instead:
Anne: Well, to start with savings itself is not a bad idea because you’ve got to start somewhere. It’s actually essential that you save money first before you invest. I think many people do step two before they've done step one.
If you're looking to grow your money, however, it's important that you look at alternatives to keeping it in the savings account where you virtually get no interest these days. That's why it's important that you look at asset classes that give you a return: equities, funds, ETFs, etc.
Anne: The biggest change has been that on the outside: there is really no interest rate to be had anymore under traditional savings. That's where a lot of people have started to look at alternatives. Before, even though you did receive higher interest rates, it would still be a fallacy to think that you really made money because there were also other aspects you needed to consider, such as inflation, the cost of living, etc. So even though saving seemed more attractive in the past, a lot of people didn't look at the other costs associated with the day-to-day. So maybe it wasn't as attractive as it seemed at first sight, but it was an easier sale to go into savings than to invest.
Anne: First, it's important that you invest rather than save. But before you do that, you need to have a bit of a small nest egg. For somebody who's just starting out it could be a little bit tougher to put money aside, but still, at herMoney, for example, we recommend saving up to three months of monthly income. Here, the return is not important. What’s important is that this money is instantly available to you if you need it: e.g. if your car breaks down, or your washing machine dies – that’s when you revert to your savings.
And so that's a good use for savings, but beyond that, it's much more important to invest and really formulate your own strategy. For instance: Am I in my mid-20s? Am I looking to put money aside to buy a new huge fancy car 10 years from now? Do I want to buy an apartment? Or am I simply saving for retirement?
You really have to define your own investing goal, which determines how long you want to invest – plus, obviously, how much money you can put aside. This goal should also include a time plan. Because then you can say: All right, in 10 years I want to have X amount of money and I have €50 that I can put aside per month. So then, it makes perfect sense to look at alternatives from a savings account and look into investing. From there, you'll quickly end up looking at investing in equity markets, buying individual stocks, buying funds... These are good choices for somebody who has little money available but that can give you good access to the market and better returns.
Anne: If you're looking at retirement, you have a long way off. You have a long time period, which means you can afford a huge equity exposure. And it's highly recommended that you do that. You can, for instance, put all your money into a worldwide investing equity fund. That's a good way to get started. But you can also – if you're a little bit more comfortable with the topic – be more “aggressive” and go into thematic funds. Thematic funds allow you to go into something that you're really interested in, or that is more focused on tech firms, or energy-specific, or water, for example. So regarding investing for your retirement, you can be really proactive and a lot more aggressive, because you have a lot of time.
If you’re only looking at a shorter time horizon – let's say 5 to 7 years – I would still go with equities. However, I would go with a fund that’s a bit more broadly diversified. This could typically be a worldwide investment fund or a fund that's focused on European equities only. It’s your call.
Anne: I think the basic questions you should ask yourself are: what is it that you want to achieve? How much time do you have? How much money do you have? And then you should just get started.
I think a lot of people make the mistake of wanting too much information. They watch every YouTube video, listen to every podcast there is but in the end – they don't invest. So you need to understand that you should take that step, you need to start.
I think what's also important to understand is that when you become an investor – while you can make quite a bit more money when compared to a traditional savings account – you also have more downside risk. And that's why we say formulate your goal, formulate your time frame, because the best way to minimize your risk is by knowing you don't need your money tomorrow. Because maybe the stock market will take a downturn tomorrow and all of a sudden you have to exit because you invested the money you need. That's not a good idea. That's why we say your basis should be to build up your nest egg, have a couple of months of savings that you can access in need, and the rest you can invest. And the best way to manage the potential downturn in the stock market is: time and goal investing. That's what I think is important to know before you become an investor.
Anne: Well, it could be that you invested €10,000 in a worldwide equity fund like we just talked about. And typically, depending on the kind of funds you have, there will be some fees associated with investing. But aside from that, if you decide one month after you invested your €10,000 you want to get out of that fund again, and you check your account, and then you realize, oops, the €10,000 invested are currently worth only €8,000. Now, it could be that if the stock market drops, your investments follow. So that's something you want to avoid. That's something to be mindful of so that you don't become a short-term investor because that's not really investing, that's speculation.
Anne: First of all, what they did in the movie was a scam. They really gambled on small stocks, penny stocks, really tiny stocks, and not the Apples of this world or the Googles of this world. Investing is if you have a goal in mind, and you go into regulated assets, like a fund, for example, or equities, with a specific time horizon.
The speculator goes in and wants to time the market. S/he wants to get in at the right time, get out at the right time and takes bigger risks. So that's what professional investors may do and they often try it, but usually, they don't succeed in “speculating on timing the market”, as we like to call it. So I think that's the difference. You use other elements, and you look at it every day and try to get in and out at the right time. It's a game. Take the GameStop stock. This is a recent example, where people got together in an Internet forum and hyped up the price. If you got in at the right time, then you made some money and if you were the last dog in there, then you lost a race.
Anne: One element I think is to strive for a long-term goal that comes with fewer risks. A second element would be to buy regulated products, like a fund or an ETF. An ETF is one version of a mutual fund of an investment fund. I think these are retail products that you as a private investor can safely buy because they're regulated and the fund manager has to report regularly what they’re doing with the money that they’re entrusted with by the investors. Plus, there are lots of rules and regulations around it.
There are, of course, also other parts of the market that you can speculate on, like hedge funds, or fetch funds that by their very nature are much riskier. And there are other investments that don't have the same rules as a fund. That's why I think – and I've been in this business for a long time – it's a good idea to invest in a fund. Because of the widely regulated nature of that kind of investment vehicle, rather than buying structured notes.
Anne: I think it's a very good way to invest your money sustainably – particularly women are very interested in looking at sustainable investing, for example. So if you have personal values relating to the environment, or you're looking for diversity, or safe labor laws – there are multiple ways you can invest sustainably, depending on your personal goals. And I think it's a good idea to do that. I also think the next generation growing up is much more aware of what's going on, and it's really looking to focus their money on sustainability-oriented companies. You can also see that the industry itself has been changing, as it’s really bringing out a lot more investment products focused on ESG ( sustainable environmental, social, and governance practices). So it’s a big trend. More money will go into these kinds of funds and equities, which will give you the added benefit of having a bit of momentum.
Anne: It's very important that women look after their money. In Europe, and in Germany in particular, most women don't really look after their money. This has multiple reasons. One being: tradition. In Germany, most women, once they become mothers, tend to work very little, if at all. That increases their retirement gap because they have very little active income. But even before that, women tend to earn less than men and they also tend to save rather than invest. So that's a big, big topic. At herMoney, we are trying to make sure that the women are a) aware, and b) look after their own financial situation and get information. That's what we provide in multiple ways. And I think women are, on average, more interested in understanding what they're investing in, which per se is a good thing, but they tend to want to over-understand it. They check this and they check that and they think again, and they still don't jump, they still don't invest. So we want to encourage them to say, look, this is not brain surgery. Here are some of the basics, just start with a small amount, open up an account with a broker, and just go for it! It's like learning a new language. You get into it and you learn a little more, you read more, you become more sophisticated about it.
And the gender gaps are there. There are multiple gaps, which I'm sure your audience is familiar with already because it's not a German problem alone.
“Investing is not brain surgery. Get the basics, start with a small amount, open up an account with a broker, and just go for it! It's like learning a new language.”
– ANNE CONNELLY, FOUNDER AND CEO
Investing is still a big taboo. People don't really talk about it, particularly in relationships. It's a stretch for many, particularly for women to approach the investment topic. So we're trying to encourage them to do that and to learn and negotiate their salaries better and even be more mindful when they take a job. You want to think a little bit about the income potential of your role because the biggest asset you have is your own means of earning money. Be your biggest fan. And human capital, as we call it professionally, is a big impact that you forgo if you don't negotiate your salary if you don't understand the potential consequences of giving up the job when you have children or get married... It's mind-boggling to me that so many women still don't think about that. Not to say you should live your life this way or the other way, but just to be mindful of the impact on your finances is just so important. In my experience – and the statistics say the same – the game changes when children come. So that's when women need to be mindful because that's when most women step back in their professional lives and take on a bigger role in child-rearing. It's a lot to consider because when you become a mother, it's a big life-changing event, so it makes sense to start to think about this a little bit beforehand already.
Anne: Yeah, just do it. What's really important is to get some education around it. You can read up on herMoney, Cooler Future, and other websites to get the basics on how to invest rather than to save, get your finances in order and keep an eye on it. And do not be too speculative that you end up looking at your investments three times a day. As we said earlier, that's not investing, that's speculation. But learn your way, find your way in that -- and just get started. You can start with small amounts, technology does allow you to do that, so just do it.
HerMoney is an independent financial information portal for women that encourages them to take personal responsibility for their financial future and become financially independent. It provides information on all topics related to money, career, insurances, retirement, and much more, written by experienced female financial journalists.