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Context:

I'm a 20-year old student with about 2 years of studies left, and have saved up about 30,000 Euros. A sizeable part of my studies includes finance, at a reputable school. Because of this, I should have foundational knowledge allowing me to invest this money in the stock market.

Investing Experience:

However, I don't have much experience (I only made about 300 Euros by trading a volatile stock with 3k-4k multiple times on Euronext.) I don't have much time since my studies take up all of it.

I don't want that much money to sit there in a 0% APY bank account, getting eaten up by inflation. It would have been interesting to play around with stocks but I don't have much experience beyond what I was taught in classes and I don't have the time to manage my money properly by quantitatively tracking various stocks.

Future use for the money:

While I am interested in entrepreneurship and using a part of that capital to help myself out, I once again don't have the time to be doing anything serious at the moment.

Current use of the money:

I don't need the money at the moment. I'm studying on a scholarship and I should be able to get a job that will keep me above water after graduating. I would only consider using it for personal projects if the project is at a stage where I can judge that it's not a super risky investment, so that probably won't be anytime soon either.

Risk profile:

I'm not that risk-averse but obviously not risk-loving either. Ideally, I'd like the money to grow at the very least with a slightly higher rate than inflation. Seeing how many people believe that the stock market may be in a bubble, I don't know if some kind of fund would be the best option. And real estate probably isn't an option with only 30k.

What should I do with the money? How and where do I invest it? Should I put it all in a fund like the ones managed by Vanguard? Do they offer Europeans ones as well (I don't have an US bank account).

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    There must be some online banks in Europe (they're in the US, and European banking is supposed to be so much more advanced than in the US) that offer competitive interest rates on savings accounts. I'd recommend keeping €1k in such a savings account for emergencies. – RonJohn Jul 16 at 14:53
  • @RonJohn I'd say for 1k EUR, the interest will be so low anyway that I would choose the bank that I'd trust the most. Hint: It's not the bank that offers the highest interest rate. – juhist Jul 16 at 15:03
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    @Fattie I disagree. Owning an expensive home is poor diversification. Renting from a functional rental market and then buying stocks / REITs / whatever you invest in has good diversification. Not only that, but stocks yield more than real estate does. For someone wanting as much yield as possible, buying lots of stocks and renting is a better option than buying no stocks and living in a paid-for house. – juhist Jul 16 at 18:31
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    @Fattie Thank you for the suggestion. Unfortunately, I don't think 30k is enough to actually own a place of my own, at least not in any of the cities that I have a connection to - And I'm not sure if I'd be comfortable owning real estate in a place I don't really have any connection to (Close to family, university, etc). Thoughts? – Fly Jul 16 at 18:59
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    @Fly I would focus on solutions actually posted as answers because you can see if the community agrees (through votes) and they are improved over time (based on comments suggesting improvements and edits).. People who post answers as comments often do so because they know it'd get downvoted to oblivion or they're too lazy to add in all the details to make it an actually useful answer (as evidenced by the fact that both "answers" you got here in the comments were refuted by the next comment). Ignore them and focus on the actual answers; that's where the useful advice is. – Kat Jul 16 at 21:17
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For almost all, the correct way to invest is to invest a certain percentage into stocks and a certain percentage into bonds. Given your young age, if you don't need the money for the next 10-20 years, 100% stocks or let's say 90% stocks / 10% bonds would be good. If you might need some of your money in few years, 50% stocks / 50% bonds could be a good balanced allocation.

If you really want to, real estate and forest can make good investments too. I have invested 25 grand (EUR) into forest, but then again I know a thing or two about forest and it's a "joint forest" owned by not only me but also other people, who share the profits. But, forest or real estate should be only a small percentage of your portfolio; thus for 30 grand I won't recommend them.

For stocks:

  • Diversify based on time, i.e. buy gradually. Since you have saved that money, you should have invested it already. But you have not, so buy gradually stocks for the next 2-3 years or so, don't buy all at once. Consider also saving money gradually from your income all the time for the next 30-40 years; you'll have a good retirement saving then.
  • Diversify based on country/field/company, don't buy just 1 stock, buy 20 stocks of different companies in different fields operating in different countries.
  • Understand into what you invest: don't buy companies whose business model you can't comprehend.
  • A good strategy is to buy stocks of companies whose products you use. An example: do you use 5000 kWh / year electricity? If so, buy shares of a company producing hydropower corresponding to 5000 kWh / year. This strategy ensures you genuinely understand what the company is doing, so that you won't purchase shares of a company whose business model you can't comprehend
  • Keep the costs low. Don't trade, instead buy and hold. Buy in large enough chunks so don't invest 100 EUR in one company unless there is a percentual cap on the commission.
  • Reinvest the dividends, once you have obtained enough of them.

If that was too complex for you, buy a low-cost index fund (ETF or a traditional mutual fund). Then you should keep in mind geographical diversification: some indices track only certain geographical areas, so you may need several funds for total geographical diversification.

For bonds:

  • They are for your safety cash buffer, so don't trade currencies, keep all in your local currency (whatever the "local currency" means to you, if planning to work at another country in the future, you can consider multiple different currencies local and thus divide your bond investments across multiple currencies). I would say in this market situation prefer short bonds to long ones. Short bonds have lower risk, and currently interest rates are near zero anyway, so you won't obtain much extra yield from long bonds.
  • Avoid corporate bonds, prefer stable government bonds. Corporate bonds are a strange asset class because you should invest in corporations by buying stocks of them, not bonds of them.

What not to do:

  • Don't buy art unless you plan to operate a museum as a business
  • Don't buy something just because you think it should increase in value; buy things that produce interest / dividend / rent / other kind of income annually.
  • Don't buy commodities / gold / oil / etc (but if you believe in commodities / gold / oil, you can buy a gold mine or an oilfield)
  • Don't buy derivatives
  • Don't buy cryptocurrencies (but if you believe in crytocurrencies, you can buy stocks of companies building GPU mining equipment)
  • Don't speculate; instead, invest!
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    “Diversify based on time” – no, investing all at once has higher expected returns. Assuming positive growth, spreading the buying out doesn't just make you pay higher prices, but also misses out on compounding returns. “Diversify” – by buying ETFs, never individual stocks. “Bonds” – for low sums, a 0% APR bank account is better than a bonds that are traded at par value (lower transaction costs, government guarantees). – amon Jul 16 at 13:27
  • @amon Well that's a risk vs expected return tradeoff. For somebody wanting maximal return (100% stocks), I'd say investing all at once may be good. But I still think diversifying based on time is in principle a good idea: if not for current lump sum, at least for future investments. – juhist Jul 16 at 14:16
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    I would suggest thinking about where future expenses might be when deciding currency. If you plan to work in another country (or, for older folks, to retire in another country) it might be worth considering those factors and diversifying currencies. – Spehro Pefhany Jul 16 at 15:05
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    Thank you for this in-depth answer. I do know the basics of stock investing (ie diversification, calculating/using beta etc to value a stock/company, etc), however all I know about the stock market would require me to put in quite a lot of time to analyze all my options. I like the idea of only taking an industry I'm more familiar with, but even there the options are endless - where do I start? I followed a single stock for a while, but that took all the time I had. I like the concept of investing in companies using things you believe in (^crypto mining companies etc). In any case, thanks! – Fly Jul 16 at 19:37
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    @Fly If selecting stocks is too hard for you, I already provided the option of buying a low-cost index fund (ETF or a traditional mutual fund) in the answer. If considering the value of your time, it may be the case that index fund wins clearly. Personally, I treat investing as a hobby, so I don't calculate the value of my time. – juhist Jul 16 at 19:39
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I've been in a similar situation a couple of years ago when I was 20 and started my studies.

My first way was going to my bank and ask them for opportunities to invest my money. I told them quite the same about my risk-profile and knowledge about stocks and that I don't have the time to really manage my money as you wrote above. They offered me some funds, which promised to raise between 3 and 8% over inflation rate and finally I choose three of them and splitted my money. By the way one was an immo-fund, so for investing in real-estate this might be the best idea for small-budgets.

At least one of my preconditions changed a little after that. I started being interested in the stock marked and economics overall, so I took a few minutes every day to read finance news, when sitting in the subway and took a closer look at some shares. Finally I signed up at an online-broker and started trading on my own with little money. The more knowledge I gained this way, the more I recognized, that the things I was told at the bank were rubbish. They promised me scenarios, which came out to be unrealistic, due to they didn't clearly communicate all the fees, which arise. So it took me nearly two years to "get back at zero". At the same time investing my money on my own not only helped me increasing my economical knowledge, but I also was clearly more successful than I were with my bank's advices. Of course I made some mistakes too, but that's the way you learn. It's better to make mistakes with small money, than later with bigger money.

Sorry for the long story - I promise now to come to an end ;-) So you see I was quite in a similar situation and I try to give you the same advice, I would give my 20 year old me, if I had the chance.

1) Make clear what time you can effort to spend in managing your money and especially make clear what amount of time you want to spend! Quantify it, like "2 hours a week".

2) Trading in a quite high frequency, as you described your first trading experience, isn't the only way you can manage your money. Indeed it is even one way which needs lots of time and experience. If you made money with trades over short time at the first time, be clear about, that you were lucky!

3) If you answer 1) similar as I would have done during start of my studies by saying "At maximum 1-3 hours a week" (including reading the finance news in the subway). Then maybe long term investments or ETFs might be an option for you.

4) Take a few hours to find some stocks and ETFs which might be a good investment for you (concerning your risk affinity and your personal preferences, your knowledge about certain industries and - don't know whether this is a deal for you - ethics). If it is a share, take a closer look on the product the company offers and (due to you have some economic background) take a brief look in the yearly/quarterly reportings (don't worry the first time you do that, it might be overwhelming). If you feel comfortable with this investment put it on your list. Choose companies, you still have a good feeling without worrying, when you don't look after the stocks for a week. ETFs are available for a wide range of indices, regions, industries, …, so it's probable, that you find something that fits to your requirements. They are a cheap alternative to a classical fund (and there are studies, which say, that on average they outperform active managed funds, taking the fees in account). But I don't want to talk you classical funds out, if you already decided to invest in classical funds.

5) Fees are your enemy. Before you start try to figure out whether you want to trade via your bank or you prefer an online broker. Especially take a look on the depot-fees and the trading fees. (also take a look on balance-fees, account-fees, or something named like that, because that's often a hidden depot-fee, linked with a account you have to have parallel to your depot). Obviously try to minimize them, but do this before you start, because a change is always troublesome ;-)

6) It might be obvious, but I'd like to highlight this. Diversify! Take the stocks and ETFs which found their way through 4) on your list. Don't buy all of them at once. Buy some of them and then take a week or two and then proceed. This avoids, that you buy all of them maybe on a local high and is called cost-average-effect.

7) When you invested time in selecting your stocks wisely, you wan't have much to do in the following time. Don't be too fearful. Always keep in mind, that dropping courses are part of the game, so don't worry about a slightly minus. Maybe the most important point is: Make some strict rules, like "My limit is -30%, after dropping more than this value I sell the stock" and be consequent, if one rule is broken. Selling with loss is always hard, but a bad investment isn't getting better, if you stick at it. Usually there is a reason, why the course dropped that much, while others rise. It's a hard to admit an error, but ignoring it costs you money. Overall your job after selecting your stocks will be keeping an eye on them and finding candidates to replace the ones, which drop out by breaking a rule. Overall that's work, that could be done in less time.

I preferred the way of doing it on my own, due to i was dissatisfied with classical funds. In my opinion it was a good opportunity to do some learning by doing without spending too much time on it, combined with a reasonable financial success so far. But of course funds, as you mentioned aren't bad at all. There is a reason, why billions of euros/dollars are put into them, so if you don't want to invest even a little time (which is ok anyway) they might be the way to go for you. I just didn't want to give advice in this direction, because I chose another way, and there definitely are other people here, who can give you a better advice concerning funds.

Maybe one last advice: Don't give too much about advices from other people. ;-) But you seem to be smart, so I think you'll manage it!

So finally I recognize, that my post got longer than expected, but I hope I could help you.

  • Thank you for your answer. I do have about 1-3h/wk to spare as you said. However, I find that it is already quite time-consuming to follow a single stock properly - so I'm not sure how to build a properly diversified portfolio with not too many correlated stocks in the timeframe. I could of course go by "gut feeling" by just reading the news, but then it would probably just amount to me getting lucky or unlucky. I'm definitely considering funds. – Fly Jul 16 at 19:49
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    @Fly only ever do that if you want to pickup a new hobby while potentially getting your feet wet in the market and overall macro/micro-economic horizon. Otherwise, picking single stocks in your case is most definitely a bad choice investment-wise. – Leon Jul 17 at 7:57
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Make sure to set aside around 20% of the gains in case you have to pay taxes on the capital gains*. And on the topic of taxes, you should look into tax free investment accounts available for your country. For example in the UK, there is the Individual Savings Account where you can invest tax free in either stocks or cash deposit with interest. There is a limit of £20000 per year so that it's not taken advantage of by large investors, but that is near to the amount you specified. A large time-saving benefit to investing in these is that you would not have to declare more taxes than what your employer (if any) handles for you.

*Initially I read that you made 30k Euro from a very profitable investment. If this money was already taxed, than ignore that part. But do keep in mind that you usually have to pay taxes on investment gains.

  • Thank you for your answer. Luckily, the 30k are all tax-free. However, my bank offers an account type (regulated by the government) that offers about 0.75APY that is non-taxable, and can hold up to 23k. I'm considering moving most of the 30k into such an account, (however, the 0.75% still would not cover for inflation so I'd like to weigh my alternatives) – Fly Jul 16 at 19:47
  • Check on a government website if the tax free account can cover any shares or other investments. The first search results for the UK ISA program only mention the cash deposits, but a bit more digging and you can find stocks and shares ISA accounts. – csiz Jul 17 at 20:06

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