Finance and investing are some of my main passions these days, and I’ve written extensively about my experiences on this blog.
Many people think that their money is safe at the bank and they don’t need to do anything with their savings. Well, here’s the inconvenient truth: by leaving money in the bank and not investing it, you’re actually losing money every year, to the tune of around 3% in most developed nations. This is due to the effects of inflation.
Here is the way inflation works. One euro today will buy more products than one euro next year, and the effect is compounded over the years.
If you’re 30 years old or over, you will probably remember clearly the times when everything was much cheaper. I remember, for example, the price of a pizza around 25 years ago being just a quarter of what it is now. That means that if I had kept all my money in the bank without investing it, over this period of time it would be worth much less, hence I would have actually lost a lot of value.
The obvious remedy to the problem of inflation is therefore that of investing our savings. Before you rush out and invest everything, make sure you know where you’re putting your money and have a proper strategy in place. I suggest you learn as much as possible about investing, without relying too much on financial advisers, as typically they will be looking after their own interests, not yours.
Apart from traditional investments where you get a yearly return in the shape of dividends, profits or returns on loans, many people are now deciding to convert their fiat currencies into cryptocurrencies such as Bitcoin. The major attraction in Bitcoin is that it is deflationary rather than inflationary. Since it has a limited supply, as time goes by the value of each bitcoin will increase rather than increase. This is the total opposite of fiat currencies, where, as we mentioned earlier, one dollar/euro today will be worth a bit less tomorrow.
How are you fighting the effects of inflation?
I get this question frequently enough from friends and people who land on this blog. To provide a quick reference, if you want to start investing your money through online platforms, there are a few different ways you can do it:
- Web3, NFTs, Crypto Gaming, Metaverse
- Property crowdfunding
- Peer-to-Peer Lending
- Stock market
- Online properties (websites, apps, etc)
- Forex and day trading
The level of risk and expertise needed to operate in the above markets differs wildly, so I’ll try to give some further pointers as to what to start off from. I will also include the expected level of return per year one should be aiming for.
Web3, NFTs, Crypto Gaming and Metaverse
In the last few years, we’ve seen the emergence of several new niches that are made possible by crypto/blockchain technology.
The overarching umbrella term for these innovations is called Web3, and represents the transition from a read/write Web2 to a read/write/own Web3. As someone who was around to see the transition from Web1 to Web2, this subsequent transition excites me a lot, especially given the fact that I was already very into crypto before this whole Web3 concept came to life.
You can also check out my guide to investing in crypto gaming.
Expected yearly return: 60%+
This is probably the only current way to make really big profits (or losses) in a relatively short time. You can refer to my post about cryptocurrency resources to learn more about this area. It’s definitely a super interesting way to invest your money, and possibly cryptos will revolutionize our lives in the very near future. At the very least, you should keep yourself informed about what’s happening in this space, even if you don’t invest.
To get started with cryptos, read my guide to investing in Bitcoin and other cryptocurrencies and my opinion on whether you should buy Bitcoin, Ethereum and Polkadot now.
You might also be interested in my crypto predictions for 2022 and my suggested portfolio allocation.
Projected returns are hard to predict in such a nascent space. David Fauchier, the founder and chief investment officer at Cambrial Capital, said 20% net returns is the benchmark for him in terms of crypto trading. It’s about being able to achieve those returns even when the overall market is flat, not just in times of volatility.
I think that 20% figure makes sense for a fund, but as an individual investor/trader, the returns can be much higher.
Expected yearly return: 40%+
DeFi stands for decentralized finance and is another subset of the finance world made possible by crypto. You can use DeFi in many ways, but at its most conservative, you can earn yields on crypto tokens, including stablecoins. You can of course go full degen mode and experiment with other blockchains than Ethereum, liquidity mining and other fun stuff
Expected yearly return: 10%+
Property Crowdfunding or property-based P2P lending is one of the most popular ways to get exposure to real estate from the comfort of your home. I think this is a pretty safe and low-risk investment given that you are purchasing real estate, which historically has held its value very well. As always, you need to be vigilant in what properties you invest in and diversify as much as possible.
I recommend diversifying geographically, having properties in various locations around Europe, including the UK. Germany and the Baltics, in particular, have yielded excellent results for me. You can also diversify on property types, such as buy-to-let, flipping, and even property-backed loans.
These are my favorite platforms:
You can check out my full list of favorite real estate crowdfunding platforms in Europe as of 2022, where I go into more depth about these platforms and online real estate investment in general.
Expected yearly return: 4-12%
Business and Personal Finance (P2P Lending)
This might initially sound like a fishy area, but really it’s not. After the last financial crisis, banks tightened up their lending procedures, and while that was, in general, a good thing, it also left a lot of people out in the cold and unable to get a loan.
In Europe, this is a big problem in many Eastern European countries as well as other Western European countries like Spain too. With interest rates being as low as they are at the moment, the situation created was that of people in Western Europe having money to invest and on the other hand people in Eastern Europe needing cash for business or personal needs. The resulting opportunity created the rise of loan platforms that are doing so well today.
With these loan platforms, you can choose to diversify your investments over hundreds or thousands of loans across many countries. You can also choose to diversify as to what types of loans you want to invest in. For example business loans, car loans, home refurbishing loans, bridging loans, etc.
My recommended platforms in this space:
You can read more about what I consider to be the best P2P lending platforms in Europe 2022.
Expected yearly return: 8-12%
The stock market is one of the most well-known ways of investing, so I won’t spend much time on it. I will only say that you should really think twice about using financial advisors and investment brokers, as they are mostly just salesmen who make money on the amount of products they manage to sell to you. In other words, they aren’t really on your side.
Research has shown that most index funds perform better than actively managed funds, so you don’t need to be paying hefty commissions every year for someone to manage your funds. You can use index investing to your benefit, especially now that roboadvisors are taking the place of fund managers.
Another great strategy would be to go for dividend growth investing. There are tons of websites of investors who detail their month-to-month earnings using this strategy. I like the idea of dividend growth investing when compared to index investing for the following reasons:
- No yearly commissions to pay (indexing can cost 0.5 to 1% of your total sum invested)
- You choose which companies to put in your portfolio. You can thus avoid companies that you don’t want to support. For example, being a health-conscious person, I don’t want to invest in and support Coca-Cola. So that company would be out of my dividend growth portfolio, even though it has a great track record. The same goes for Mcdonald’s.
- It’s more exciting, depending on your personality, to actually choose which companies you want to be a part-owner of, and track them year over year. On the downside, it also takes more time.
With both strategies, you would then use an online stock broker to purchase your shares or ETFs.
I personally love to pick stocks myself, even though I know that the theoretical odds are stacked against me. Check out my ideas on stock picking and my favorite stocks.
Expected yearly return: 10%+
Gold and Silver Bullion
First of all, what the heck is bullion? Bullion is gold and silver that is officially recognized as being at least 99.5% pure and is in the form of bars or ingots rather than coins.
The word bullion comes from the French Minister of Finance under Louis XIII, Claude de Bullion. To create bullion, gold first must be discovered by mining companies and removed from the earth in the form of gold ore, a combination of gold and mineralized rock. The gold is then extracted from the ore with the use of chemicals or extreme heat.
See also: Should you invest in gold right now?
With that out of the way, we can now talk about where to buy, store and sell bullion online. The storage part is key here. Most probably, you won’t want to worry about storing your own gold or silver in a safe place. That’s why platforms like BullionVault take care of storage for you. Of course, you can also buy and sell on the platform.
One important factor to consider with bullion: Gold and silver have no intrinsic value. They aren’t productive assets. Compare them to stocks. When you own a share of stock, you own a piece of a business that produces goods and/or services to consumers. A good business generates a profit. Every year that passes, gold remains sitting in the vault, but the owner of a company such as Apple or Nike might have a giant pile of cash from the profit generated over that same year.
When evaluating the performance of gold as an investment over the long term, it really depends on how long a term one is considering. Over a 45-year period, gold has outperformed stocks and bonds; over a 30-year period, stocks and bonds have outperformed gold; and over a 15-year period, gold has outperformed stocks and bonds.
Many investors don’t really consider bullion to be an investment at all. Rather, the precious metal acts as a hedge, or a way to try to protect wealth against the risk of loss in such asset classes as real estate, equities, and bonds. There’s the doomsday scenario reasoning too, which argues that in the case of a global financial collapse or armageddon, gold and silver will be some of the only things with value attached. People will first value food and shelter that cover their basic needs, and soon after demand will start again for gold and silver as people seek to build a store of wealth or impress others.
Needless to say, gold and silver are very contentious assets, with strong arguments both for and against. In my opinion, if you have money to spare, it wouldn’t hurt to keep some of your net worth in gold as a hedging mechanism. I would give priority to nailing good investments in some of the other categories above, however.
You can use Bullionvault to invest in gold.
Expected yearly return: Nobody knows really, it could be negative returns to double-digit positive returns. It’s more of a hedging mechanism than something you invest with hopes of a specific rate of return.
By online properties, I mean websites or mobile apps. Chances are you know of a friend or friend of a friend who has achieved some degree of success by owning a website or a mobile app. This is your chance to do the same, but rather than starting from scratch, you buy an existing up-and-coming website, or indeed one that’s well established and turning a healthy profit.
You need to be careful in evaluating such online properties, but they can give returns of 40% plus per year, which is super attractive compared to other opportunities. If you know what you’re doing, the risk-reward ratio is very much in your favor.
Bew careful about pure Amazon affiliate sites. If you’re relying 100% on Amazon commissions and you think that you’re your own boss – think again. Amazon owns your ass. For example, they recently decided to cut the commissions for a set of categories by up to 80%.
It’s a good business move by them, IMO, and nothing new (link). Diversification is key. Sites that have multiple traffic and revenue sources are the ones that achieve the highest multiples. If you rely on one or two sources, you’re not playing the long-term game. You’re just looking for quick-wins.
I think that there are some niches that are better than others. I’ve been looking at several niches and so far the best I’ve seen are online marketing, personal finance, investing, and technology. Fitness websites also interest me a lot but it’s really hard to make a decent dime on those without ending up promoting rubbish products.
Expected yearly return: 40%+
Forex and Day Trading
However, that’s not to say that there’s anything wrong with this type of investing. If, unlike me, you seek an intense and high-adrenaline way of investing, and you’re really attracted to and love technical analysis and charting, day trading might be the right choice for you.
I do know several people who are passionate about day trading and make a very decent living out of it. Don’t fall for the internet promises of instant riches in day trading with minimal time investment though. If it sounds too good to be true, it always is.
Like any other kind of investment, day trading requires a high degree of competency, discipline, and daily work in order to have a chance at being successful. You can definitely achieve an above-average level of wealth in the long-run if you put in the effort.
If you want to give it a go, however, check out my deep dives on this topic:
- How to day trade in 2 hours or less (extensive guide)
- CFD trading guide – What are CFDs and should you trade them?
- A guide to the forex markets
Expected yearly return (with a good dose of luck): 30-40%
My recommended platforms:
I hope this short summary will help you get a good idea of all the options available. If you have any questions or would like me to write more in-depth about any of these topics, please let me know.