How should I invest my money as a young graduate in Europe?

Question

This is related to this question, but that question's answers are 95% tailored for residents of the US, basically recommending to full out the 401k retirement plan and this and that about stock market investments.

My question is, are there other types of investments that are good for a young person starting out a career?

Pointers:

• I live in a welfare state in Europe, so I don't have college debt, (debt of any kind actually).
• Rainy day funds are much less needed than in the US, since here there is unemployment insurance for at least 18 months.
• I can probably invest 500€-600€ monthly for something. (The question is what.)
• I am not looking to invest in my retirement (I am already forced to pay for that out of my salary). I want to maximize my earnings for medium term (5-15 years).
• I specially want to avoid the typical paradox of (be poor in your 20's,30's,40's and be able to use your money after your 50's). That is not an option for me, I want to use my money for X or Y. But the money used has to be earned from an investment. That is a general rule for me.

For example I want to earn from my investments at least 70k€ after 5-10 years. So I'm guessing this would be a high risk investment, correct?

I would like to spend on travel, on courses, on sports etc... But I insist that the money I spend should be a result of an investment not from my salary.

Additionally I am not looking to buy a house so I don't want a mortgage. Except if this would constitute a good investment?

FYI: this applies to France. But I'd like a general answer so others can benefit.

If the question is unclear, a duplicate or off-topic don't hesitate to comment

Answer 1

Using a simple investment calculator to get a sense of scale here, to have 70k total, including the 500 a month invested, after ten years you just need returns of 2%. To earn 70k on top of the money invested you would need returns over 20%. To do that in five years you would need over 50% annual return.

That is quite a big difference. Annualized returns of 20% would require high risk and a very large amount of time invested, skill and luck. 2% returns can be nearly guaranteed without much effort.

I would encourage you to think about your money more holistically. If you get very unlucky with investments and don't make any money will you not go on the vacations even if your income allows? That doesn't make a lot of sense. As always, spend all your money with the current and future in mind. Investment return Euros are no different from any other Euros.

At that point, the advice is the same for all investors try to get as much return as possible for the risk you are comfortable with. You seem to have a high tolerance for risk. Generally, for investors with a high risk tolerance a broadly diversified portfolio of stocks (with maybe a small amount of bonds, other investments) will give the most return over the long term for the risk taken.

After that generally the next most useful way to boost your returns is to try to avoid taxes which is why we talk about 401(k)s so much around here. Each European country has different tax law, but please ask questions here about your own country as well as you mention money.se could use more ex-US questions.

Answer 2

Before starting with investing, you should make sure you are saving enough. Living in a welfare country (France) does not exempt you from potentially needing to save large amounts of money.

You state that you do not need much of an emergency day fund, but this is not true. Being dismissed unjustly from your job is not the only way to become unemployed and not all roads lead to unemployment pay. Being fired for cause or leaving your job voluntarily are two work related causes that will leave you without an income source. Unexpected major expenses are another reason you might need to dip into your emergency fund.

If your emergency fund is in order, the next thing to investigate is your pension and saving for retirement. In a country with a strong pension system, you need to check how comfortable you are with its sustainability (Greece anyone?) and also whether it will adequately meet your needs. If not, there are no 401ks or IRAs in France, but there is a relatively new personal supplementary pension plan (PERP) that you might investigate contributing to.

If you're comfortable with your emergency fund and your retirement savings, then preparing for buying a house is likely your next savings goal. A quick search shows that to get a mortgage to buy a house in France, banks will commonly require a downpayment of 20% plus various closing costs. See for example here. This is 40,000+ euro for a 200k euro house, which will take you several years at the rate of 500 euro / month. France has special plans (Plan d’Epargne Logement) with tax-exempt interest for saving up for a house that you might want to investigate.

In your other question, you also ask about buying a cheap car. As you get older and possibly start a family, having a car will likely become more of a necessity. This is another goal you can save for rather than having to take a loan out when you buy one.