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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.

Featured articles

Why invest in cryptocurrencies?

Cryptocurrencies have transformed over the past few years from a dubious experiment to a serious investment category that attracts the attention of both individuals and institutional investors.

The most profitable investments in the last 5 years

A look at what have been the most profitable investment categories over the past five years

When is it important to pay attention to broker commissions?

In this article, we explore the situations in which it is important to pay close attention to brokerage commissions in stock transactions

Table of contents

Preparation

Investments in stock exchange shares

Loans/bonds

Other investments

Why it is better to invest in index funds

Mutual funds pool investors' money and invest in stocks and bonds. The main advantage of mutual funds is the diversification of investments, which means that possible problems with an individual investment do not have a significant impact on the overall return. The investment baskets created by the funds can have different specializations - by type of securities (shares, bonds), geography (USA, Europe, worldwide), industry (technology, banking, real estate) and many others. For almost all investors, investing in mutual funds is a much simpler and smarter way to invest than building a portfolio of individual stocks or bonds.

The main thing worth remembering is that mutual funds can be divided into two broad categories:
  1. Index funds. These funds closely replicate a selected stock or bond index, such as the S&P 500 stock index in the US. The manager of such a fund does not make any individual investment decisions;
  2. Active funds. These funds are managed by financiers, actively evaluating investment opportunities, investment decisions and otherwise actively managing the investment portfolio.

Because index funds do not need to research or manage investments, they are able to offer significantly lower management fees. Annual management commissions for actively managed funds are usually in the range of 0.5%-1%, compared to 0.07%-0.4% for index funds. Despite (or because of) higher management fees, in terms of returns, based on a series of studies, only about 10% of active funds have been able to deliver better returns than comparable index funds over the long term.

As a result, in our opinion, it is obvious that it is more appropriate for a rational investor to invest in index funds, including making sure that the 2nd level pension savings is also invested in the most profitable index fund plan. Since it's easy to get lost in choosing index funds, we've also created an article on how to easily build your own index fund portfolio.