There are three main investment opportunities that generate long-term returns.
- Real Estate: You save paying rent, which is a form of return. Value gains in real estate are pure speculation. This has worked well in the past, but is not a guarantee for the future. On the contrary, high property prices reduce the chances of return.
- Bonds: If you leave your money with the state or with a company, you receive a fixed interest rate for bonds. Due to the fact that bonds have to be repaid at some point, you have a high sense of security. The interest rate of secure bonds is now similar to that of a bank account, or even negative. This is currently not an optimal investment opportunity.
- Stocks: Stocks give the owner the right to a profit of a company. This claim is the return on the stock. In the long term, it is higher than for bonds and bank accounts. If you save long term, it is best to save with stocks, as long-term returns on stocks are the highest. This also makes sense, because in the case of stocks, you’re co-owner of a company, and owners make more money than those who only lend their money to others.
However, there are a few rules you should follow when investing in stocks:
1. Don’t panic if the markets drop. The most important thing is to buy stocks when markets are falling and to sell stocks when markets are increasing. It's like the end of season summer sales: this is the time to buy clothes, because that’s when they are cheaper. This is not the time to sell your own clothes.
2. You should also save with stocks when you have your own business, because even though you earn more with your own company, it is also more risky.
3. Never put all your eggs in one basket. If you buy stocks, you should make sure that after a while you invest in at least 20 shares in similar proportions. This is called diversification and that’s what makes the portfolio safe.