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Useful suggestions on how to invest and earn

One can invest and save not only in bank deposits. The goal of this handbook is to inform about the wide range of alternative investment opportunities available to any investor. The target audience of this handbook is anyone who has established or plans to establish savings in the thousands (but not in the many millions) and who basically understands or is ready to learn what shares, bonds, investment funds and similar terms mean. The handbook content is regularly updated.

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Table of contents

Preparation

Investments in stock exchange shares

Loans/bonds

Other investments

How to start investing: the basics

I have decided that I need to save and invest. I have sold real estate or a business and want to invest the money wisely. We cover how to start thinking about investments in this article.

WHERE IS YOUR PENSION

The first step is to make sure that the existing savings of the second pension plan is in the right place. That is, at the manager who invests in index funds. Historical data clearly demonstrates that other pension fund managers cannot consistently outperform index funds. If the second level is the only savings and you plan to retire soon, you can choose Vairo's adaptive investment plan. Otherwise, the rational choice is to choose the cheapest index fund currently offered by CBL (Citadel) Index Plan.

STORAGE WITH STATE SUPPORT

In order to encourage citizens' savings, the state provides support. By investing in the third pension plan (or buying accumulative life insurance) up to 10% of the gross salary but no more than EUR 4,000 per year, 20% of the personal income tax paid can be recovered from the state for the amount of savings. Basically, this means that investing in a third pension plan gives you a 20% return in the first year, regardless of where you invested. When saving like this, it is again wise to choose the cheapest index fund provider. In this area, the offer of managers is similar and you can choose the most convenient one (for example, in your bank).

MONEY IN THE ACCOUNT MUST ALSO WORK

The next step is to make sure that the money in the current account is also working. Across the Baltics the large banks were slow to pay interest on account balances, but they have now started offering it. Some banks do this automatically by calculating interest on the bank account balance. For others, separate products have been introduced, using which you can freely add and withdraw funds, earning interest. It is important to note that smaller banks usually offer much better rates. Despite the differences in the interest rates offered, all banks have the same state guarantee for funds up to EUR 100,000. Alternative payment institutions such as Revolut and Wise also offer high interest on account balances, which are also subject to the investment insurance principles of the European Union.

DEPOSIT IN THE BEST PLACE

If it is clear that the money will not be needed for daily expenses for a while, then in terms of security it is difficult to beat an investment deposit. Again, it is important to remember that in all banks the deposit up to EUR 100,000 is guaranteed by the state and it is a rational choice to deposit money in the bank that offers the highest interest (even if this bank is not used on a daily basis). Banks automatically withhold personal income tax on interest earned on deposits. Several countries issue savings bonds to private individuals that are free of that tax, so it is worth checking what your own state offers. To compare such a bond with a bank deposit, multiply the deposit rate by one minus your personal income tax rate.

STOCKS, INDEXES AND ROBOTS

The next step in saving is to invest in stocks. There are a couple of golden rules of investing that you should always keep in mind. The first - investments must be scattered (diversified) and not held in one or a couple of company shares. The simplest principle (as with pension funds) is to invest in index funds. So that you don't have to choose these funds yourself, the offer includes very elegant tools, such as SEB banka's Roboinvestors or Mintos ETF investments. On the other hand, an even simpler solution is to increase the amount of your contributions to the 3rd pension plan savings (or accumulating life insurance), which is hopefully chosen to invest in index funds. If you still want to buy index funds yourself, then we recommend starting with these two: iShares MSCI World (stock code IWDA) and iShares MSCI Emerging Markets (stock code IEMA), which will effectively cover investment in shares of the world's largest companies. On top of these index funds, others can be added, as we describe in this article.

The second golden principle is not to invest a large amount in one go, but gradually and systematically. Stock markets are constantly swinging from over-ecstasy to deep depression. It is not worth trying to guess yourself whether the shares will soon fall or rise. Create your own system for investing, for example, buy shares every month on the last business day. If you buy stocks yourself, depending on the amount of these regular purchases, it may be important to pay attention to stock purchase commissions.

CONTINUE IN THE BALTIC STATES
If all of the above has already been done and there is a desire to expand your investment field of vision, we recommend starting with opportunities to invest in Baltic companies (of course, remembering the principles of diversification). By investing in the local market, your capital will not only earn extra, but will also help the companies of our region to develop. The most prudent way would be to start with corporate loans by building a portfolio of loans on crowdfunding platforms such as Capitalia. The historical returns of such loan platforms are 8-12% per year. On the other hand, long-term investments in the stock index of the Baltic countries have provided a return of more than 10%. Unfortunately, there is no such convenient way to buy the Baltic stock index as you can buy global stock funds, however, thanks to Swedbank's commission-free securities account, such an index can also be replicated by everyone.