In the long run, however, investing can provide a solid return/risk ratio. Let's go through the options one by one. Let's assume that you can only save a relatively small amount of up to CZK 10,000 per month.

Savings account

In a savings account, you should save funds that you don't need immediately to finance current expenses. It is not too difficult to estimate how much to put aside in a savings account. You can already easily find out the amount of your regular expenses in your online banking application, of course at the bank whose account you use for both sending your salary and making regular payments. So the amount that is over and above your monthly expenses should, at worst, end up in your savings account. This is a kind of emergency reserve that you can tap into at any time without penalty, but it's a shame to leave this money in your current account because you'll get a better rate of interest on your savings account. Moreover, the money is insured under the compulsory deposit insurance. The downside, however, is that central banks are currently on a downward trajectory in terms of interest rates, so you have to expect that rates on savings accounts will continue to fall for some time.

On the other hand, even an interest rate of around 2-3% is not out of the question these days, as it is still above or around the inflation rate.

Investment fund

Money that you don't need now, and won't need in more than a year, is suitable for regular investment through an investment fund. In addition, an investment fund is suitable for the average small saver who doesn't have time to look after their money on a daily basis and isn't very knowledgeable about the world of finance (which is no shame). Here you just need to be clear about your attitude to risk. Choose the type of fund accordingly (equity, bond, mixed, etc.). Here it is also advisable to consult someone about the specific fund so that you don't fall for the scammers. Funds managed by banks or reputable investment companies seem to be more secure.

Equity indices

Investing in stock indices behaves similarly to investing in a stock investment fund. The difference is that you are the one who chooses the specific index and the point at which you invest in the index. But beware, investing in a stock index can only be done through an investment fund that has a composite stock portfolio that replicates the composition of a particular index. These funds are known as exchange-traded funds (ETFs), you can usually buy them through stockbrokers, and their descriptions tend to specify which investments they focus on. So if you want to invest in a stock index, then choose an ETF that replicates the structure of that particular stock index. When investing in a stock index, you need to be patient and not panic if the stock is currently falling. In the long run, stock indexes tend to increase in value. Another great advantage is the ability to trade ETFs that are inverse to the market. In case you are expecting a decline in the Stock Indexes you don't have to wait, but you can profit from that decline by buying an ETF inverse to the Stock Indexes.

Stocks

Of course, you can also invest in specific stock titles on a regular basis. And you don't have to limit yourself to your local stock market. There are a number of brokerage apps on the market today through which you can invest in virtually any stock in the world that is traded on the exchanges. However, this type of investment is one of the riskiest, so it needs to be approached judiciously. Be clear about what you expect from an investment in a particular stock. Whether it is primarily for appreciation, or whether you want to own a stock that provides a decent dividend yield. In addition, it is also worth keeping an eye on developments in the global economy and the sectors in which the particular company in which you are investing is doing business. Investing in shares is therefore very time-consuming as well as knowledgeable and experienced.

Of course, choosing the right broker is a separate issue that needs to be addressed first and foremost. This is addressed in our other investment blogs.

Investing actively or passively?

Active investing is clearly for people who know which way the rabbit runs in the financial world, and who have the time to do it. The principle of active investing is that you buy or sell securities at times when such a transaction is appropriate. For example, if the value of a stock is falling, you use the moment to make additional purchases "at a discount", whereas if its value is rising, you may sell some, with the proceeds being reinvested elsewhere. This type of investing is not really suitable for everyone, and certainly not for savers who do not want to sacrifice their time to invest.

For them, and for a wider range of people in general, passive investing is the way to go. It is based on the fact that you invest a certain amount of money in your chosen instrument on a regular basis. Preferably every month, regardless of where stocks, bonds or mutual funds are at the moment. This saves you from impulse purchases or sales and therefore spreads the risk over time. If you invest regularly over the long term, you are bound to buy an asset at both its peak and its trough. But over the long term, on average, you are investing at the right time and therefore have a high probability of a decent return at the end of your investment horizon. But here we are talking about ten, twenty or even forty years. It all depends on when you jump on the investment train and how long you let yourself ride it.

Robert Palius, Axil Academy Lecturer