Full transcript of “The Best Strategy to Invest €500/month in Europe”. Click a timestamp to open the video at that moment. Need another video? Use the YouTube transcript generator.
0:00 So, you've decided it's time to get serious about investing. You want to put aside three, four, 500 euros, pounds, or francs every month, but you've got so many questions. What investment should you choose? Which platform or brokerage is the safest? And what should you do about taxes? [music] It feels overwhelming and you don't want to make a mistake and lose your savings. Well, in this video, I will use my 19 years of professional investing experience, both on Wall Street and here in Europe, [music] to walk you step-by-step through the best way to invest your monthly savings. But first, I've got to say congratulations, cuz you're about to avoid the most expensive mistake that I see smart Europeans make all the time. If you save 500 euros a month and just leave it in the bank, in 30 years, you
0:46 would have 180,000 euros, which is a decent amount. Many Europeans do exactly this and they're proud of the result. But here's what they don't realize. If they had invested the money instead, even if they earned just 7% per year on average, instead of 180,000, they would retire with 586,000. So, basically, if you don't invest, you've got a shortfall of 400,000 euros and most Europeans don't even realize it's there. Plus, it gets worse. You see, every year, everything gets more expensive. Rent, food, travel. That is called inflation and it means your savings can buy less and less every year. With 3% inflation, those 180,000
1:31 euros in future retirement savings are worth just 75,000 in today's money. But investing can fix that. If you invest and earn that same 7% per year as before, well, even if you take away the 3% inflation, that still leaves a real profit of 4% per year and you would end up with 343,000 euros in today's money instead of 75,000. Can you imagine the difference between retiring with 75k versus 343k? Think what that means in terms of the vacations you're able to take, the kind of place you're able to live, the restaurants you can go to, the way that you can help your grandkids. But it does lead to an obvious question, which is what is the best investment to buy with your 500 euros a month? Well, to answer
2:19 this, let's dismantle a major false belief that I hear from my beginning students in Europe. And it is this, that conservative investments are safe investments. When choosing between investing in stocks, which means buying shares in companies where you will do well if the company does well, and investing in bonds, which means lending your money to a company or government, where they have to pay you back no matter what, people often think bonds are much safer. But the thing is, investment safety is not a fixed quantity where some investments are always safer than others. Investment safety depends on the time period. If you're investing for a short period, like 3 years, then absolutely a high-quality government bond is very,
3:05 very safe. Because a government bond is basically a loan to a country, and every year like clockwork, you will receive interest payments, and at the end of the term, you will get your money back. There is close to zero risk. By contrast, when you invest in stocks, pretty much anything can happen over 3 years. If the companies in your portfolio do well, you could double your money. If they struggle, you could lose half or more of your money. You will find many 3-year periods in history when the stock market went down, like between 2000 and 2003, or between 2007 and 2010. But here's the thing, most of us are not investing for just 3 years. We're investing for the future, for retirement, for long-term goals. And over longer time horizons, the logic
3:52 flips on its head. You will not find any 20-year period in the history of global stocks where a diversified stock portfolio would have lost you money. Let's say you started investing 20 years ago in 2006, which was right before the financial crisis when stocks were quite expensive. If you invested 10,000 euros in global stocks back then, by today that would have grown to 53,000 in nominal terms or 35,000 if you adjust for inflation. But, the picture is very different if you invest in bonds. For example, over the past 20 years, 10,000 euros invested in high-quality bonds would have become around 18,000 euros in nominal terms and only 12,000 euros adjusting for inflation. That is only a
4:39 little better than simply keeping your money in a bank account. So, in my view, for a long-term investor, the choice of investment is pretty simple. The most profitable investment and arguably the safest investment are one and the same. It's investing in stocks. And when you really think about it, that makes sense because if you invest in stocks, you're buying shares in real companies. And at those companies, real people go to work every day to solve problems and serve their clients and make money for shareholders. That is why the global stock market has been so profitable for decades. But, don't rush out there and start buying stocks quite yet or you will make the same mistake as my student Laura, a lovely German lady in her 50s who I spoke to recently after she completed my training program, the Index
5:25 Master Class. She said, "Tom, I really wish I had this training 20 years ago because I started investing back in 2005, and for the past two decades, I've been picking stocks. I've literally spent thousands of hours on my portfolio, but honestly, my results have been poor." Now, let me be perfectly clear. This is not because Laura is unintelligent, unskilled, or unlucky. This is a perfectly normal outcome when you try to pick individual stocks. You know, when you read about great stock pickers like Warren Buffett, you get the idea that smart investing is about finding fantastic companies among the thousands of different stocks in the market, but the data is really clear on this. The average stock picker does very poorly, simply because the game is
6:11 incredibly hard. You see, around 11% of all stocks in the market eventually go to zero. 40% of all stocks at some point experience a 70% loss from which they never recover. Half of all stocks lose investors at least a bit of money. In fact, it is only a tiny handful of stocks that become really, really profitable. It's companies like Amazon and Microsoft and Nvidia that pull up the average result for everybody else. But, guessing this tiny handful of winning stocks ahead of time is extremely difficult. For every big success story like Amazon or Nvidia 20 years ago, there were 10 other stocks that looked just as promising that went to zero or really struggled. For that reason, stock picking is a proven waste
6:58 of your time and energy. So, what should you do instead? Well, think about it. We know that long term, the stock market as a whole has been tremendously profitable. It has earned 9% per year over the past 50 years. So, wouldn't it be better if you could just get that total market result without having to do any work picking individual stocks? That's exactly what you can do with ETFs and index funds. ETFs and index funds are simple investment funds where you put in your 500 euros a month and the fund provider uses this money to buy every stock in the market. Decades of data show that ETFs and index funds make better profits than the vast majority of stock pickers. Warren Buffett himself said, "By periodically investing in an index fund, the know-nothing investor
7:43 can actually outperform most investment professionals. Despite my decades of professional investing experience, this is how I invest my family's money. Every time I get some income from my business, I buy a few ETFs, and that's it. Now, where do you find the best ETFs or index funds to buy as a European investor? Well, the best place is a portal called justetf.com. They've got a great database covering more than 4,000 different ETFs. You can search for ETFs by target market, like funds that invest in America versus Europe versus emerging markets. You can search by company size. You can search by how expensive the funds are and also by technical factors, like accumulating versus distributing funds. So, here are a few key principles to keep in mind
8:29 when selecting ETFs. First, pay attention to diversification. This is a fancy word for not putting all your eggs in one basket. Unless you are an expert, it's best to avoid ETFs that focus on just one industry sector or theme. Instead, choose an ETF that invests your money in hundreds or even thousands of different companies based in different countries and working in different industries. Second, watch the total expense ratio or TER. The more you pay in fees, the worse your expected outcome. Ideally, keep the TER below 0.2% per year. And third, think about taxes. In most European countries, so-called accumulating ETFs are better for taxes, but there are exceptions, such as Switzerland, Austria, and the
9:15 UK. Also, depending on your country, there can be other tax nuances tied to where the ETF is based, on which stock exchange it is traded, and more. Selecting ETFs can get a little bit tricky. So, I've actually built a step-by-step training program that walks you through all the details. If you're interested, just follow the first link in the description to find out more. But now, I need to highlight another key mistake that many European investors make. To explain it, let me tell you about my teeth. So, 19 years ago, I first got a job on Wall Street as a young kid from Eastern Europe. For the first time, I had excellent American health insurance. So, I went to a fancy clinic to check out my teeth. They did a full scan of my skull, and the dentist came in looking concerned. He said, "Look, I got to tell you, we have to do
10:01 a lot of work. You need five crowns and three fillings." All that work cost me months of pain and $10,000 on top of what insurance covered. But then, a year later, I went to a good dentist in Latvia, and he told me, "Yeah, most of that work was completely unnecessary. This was just the American clinic maximizing their profit." That felt like such a betrayal. I was furious. But apparently, this happens all the time. And this same problem is 10 times worse in the investment world. Let's say that you decide investing is too complicated, so you go to your bank and ask for help. They tell you, "Don't worry. Just trust your money to us. We'll take care of everything." You're happy that now you've got an experienced team taking care of you. But here's the thing. In Europe, your bank has no obligation to
10:47 recommend the best possible investments for you. Let me repeat that. They have zero legal obligation to choose the best possible investments for you. As long as the investment is not totally outrageous, they can recommend it to you no matter how expensive or poorly performing it is. Banks are profit-maximizing companies. So, they will recommend expensive funds, either run by the bank itself, or where the bank gets huge kickbacks for selling you the product. The typical investment fee that you will pay is 1.5% of your money every year. And maybe that doesn't seem like such a big deal, but let's go back to our example. So, let's say you've been investing 500 euros a month, and you're doing this for 30 years, and your profit is 7% per year minus 3% per year
11:35 for inflation. Over 30 years, your total profit would then be €163,000. But now, let's say you've been paying 1.5% per year in fees. Well, this cuts your profit down to 87,000. You've lost almost half the profit because you wanted somebody else to invest for you. This is why I sincerely believe that everybody in Europe needs to gain at least basic investing skills. Because otherwise, you just get taken advantage of, like so many students who come to me in their 60s after paying these ridiculous fees for years. Okay, but let's say that you found an ETF or index fund that you like. What is next? Well, to buy the fund, you need an investment app or brokerage. An investment app is kind of like a supermarket for investments with the important
12:21 difference that your investment app will not just sell you the investment, but will also hold on to your investment and keep it safe for you after you buy it. So, that means it is very important to use a platform or brokerage that is regulated, reputable, and financially strong. Now, when it comes to complete beginners who want to invest small amounts like €50 a month, there are many good platforms out there like Trade Republic or Trading 212 or Lightyear or DeGiro. But if you're putting aside a larger amount every month, I would look at one of the industry flagships. This could be Interactive Brokers or Saxo or for the wealthier among you who want a Swiss bank account, it could be Swissquote. Now, let me just briefly sketch the difference between them. Interactive Brokers is arguably the
13:07 industry leader, one of the biggest online brokerages in the world, a public company that is part of the S&P 500 and trades on the Nasdaq stock exchange. As a European investor, you will invest through the Irish or the UK branch of the company. Interactive Brokers has a stellar A- minus credit rating and many other banks and brokerages rely on Interactive Brokers technology and infrastructure for investing. So, this is really one of my top choices, one of the brokerages that I personally trust the most. But, Interactive Brokers does have a significant downside. It is a bit difficult to learn. It's a bit technical. Next up, we've got Saxo, a Danish brokerage with a banking license in Denmark and in Switzerland. They've also got an A- minus credit rating. They're a very reputable firm. I'd say
13:54 Saxo is a little easier to use than Interactive Brokers, although it's still a bit on the technical side. The two major downsides with Saxo today are first, that in some European countries, they still charge an expensive custody fee for simply holding your investments. And second, depending on the country where you live, the ETF selection that you will have can be very limited, especially in Eastern Europe. And third up, we've got Swissquote, which is a significantly more expensive brokerage. Swissquote has two separate banking licenses in Switzerland and in Luxembourg. And you can choose with which bank you will open your account. This is a company trusted by experienced and smart investors, but the fees really are on the expensive side. So, Swissquote might be described as a
14:39 brokerage that is best for wealthy investors who want a safe, reputable place to invest their money. That said, when choosing your brokerage, you also have to consider factors like where you are based, the brokerage products you're going to use, the fees, and the local tax rules in your country. These are all topics that I cover in my step-by-step training program, The Index Master Class. I've also built a short list of popular brokerages for investors in different European countries. If that sounds interesting, you can find out more by following the first link in the description. That said, there's another critically important factor that you need to figure out before you buy your first ETF. And if you'll follow the news at all, you will know exactly what I mean. Just this year, the The announced it's imposing a new system where it will tax unrealized investment
15:26 profits. So, even if you don't sell an ETF, as long as there is a profit at the end of the year, you have to pay tax. The same year, Belgium has introduced a new 10% capital gains tax. German investors have to worry about a new exit tax where if you leave the country while holding more than half a million euros in a single ETF, you could get taxed. In my experience, taxes are often the number one problem for European investors. Either because people don't plan properly and then they pay more than they need to, or because they ignore taxes completely and then get in trouble with the government. It really shouldn't be that way. If you know what you're doing, virtually every country in Europe offers significant opportunities to reduce your taxes legally and ethically. This is something we've
16:11 confirmed with my team after we invested more than 30,000 euros in tax research over the past few years. We actually built a tax portal for our students and highlighted exactly what taxes they need to pay and how to reduce them in every European country. And these insights can be a real game-changer. So, if you're ready to invest significant amounts of money every month and you don't want to make mistakes, if you would like to learn how to do this the right way with a simple, easy, step-by-step system where I'm there with you every step of the way to answer questions, well, I'd love to see you in our training program, The Index Masterclass. Just follow the first link in the description and book a call with my team to find out more.
