- €13000 banked on a 1% savings account.
- €1700 banked on a payment account.
- €1450 monthly income (after taxes).
- ~€400 monthly costs, and probably another €200-400 in incidental expenditures (food, games, clothing)
- I'm 21 years old.
- I have no debts.
I'm left with a good €650-€850 that I put in my savings on a monthly basis.
The trend in my life so far has been that money comes into my bank account and rarely leaves it. Monthly expenditures are €300 for rent, €8 for phone internet, and a good €100 or so in insurance. I still live with my parents. This is not likely to change for the next few years (5).
I want to start putting my money to good use. It's doing nothing at the moment, and I feel I'm missing out. I recently discovered "Mr Money Mustache" and his "early retirement plan": Invest your money, watch it grow with 2 to 4% after inflation via low transaction cost index funds, and retire early.
I like the idea of that. Not so much the idea of "quit your job at 40 and then vacation all day long" but more the idea of "quit your job at 40 and then work in the way you want". That is, having investments compound so much that you can live off the dividends.
Perhaps I can't use the money I will earn to retire early, because my parents will kick me out and make me buy my own home when they realize I've got 50k stashed away in a few years. This doesn't take away from my goal: To allow my savings to keep up with, or even beat inflation, so that I may use it for a big purchase or financial independance in 15/20/25/30 years.
I've been doing some research, but I'm getting antsy. My parents don't trust the stock market ("You'll have more luck playing the lottery"). Yet I can't just leave my money in savings accounts; it will lose to inflation. It's not much right now, but losing purchase power due to leaving my money in the bank feels wrong to me.
I also feel that even if I screw up right now, I will blow €10000. I can earn this back in a year. But for me to lose that in an index fund... wouldn't the whole economy have to collapse so badly half the world is homeless?
I'm planning on buying something related to Vanguard; but if this is a bad option for an European, I'd like to know. I want to split my investments between stocks and bonds and a small private project.
With this, I have a few questions:
If I invest in index funds or other long term stocks that pay dividend which I reinvest, they don't need to be worth more per share for me to make a profit, right? That is, if I sell part of the stocks, it's GOOD if they're worth more than I bought them at, but the real money comes from the QUANTITY of stocks that you get by reinvesting your dividends, right?
Can I invest "small amounts" (part of paycheck) into index funds on a monthly basis, like €500, without taking major "transaction fees"? (Likely to be index fund specific... general answers or specific answers using popular stocks welcomed).
Is this plan market-crash proof? My parents keep saying that "Look at 2008 and think about what such a thing would do to your plan", and I just see that it will be a setback, but ultimately irrelevant, unless it happens when I need the money. And even then I'm wondering whether I'll really need ALL of my money in one go. Doesn't the index fund go back up eventually? Does a crash even matter if you plan on holding stocks for 10 or more years?
Does what I'm planning have similarities with some financial concept or product (to allow me to research better by looking at the risks of that concept/product)? Maybe like a mortgage investment plan without the bank eating your money in between?
These boil down to my base question:
Can I make my savings keep in check with, or beat, inflation over a long time period via index funds?
Is what I'm planning at least better than stuffing all my money in savings that have 1% interest?