Investment for the poor. Where to invest when you have no money

You can invest even with five hundred a month. The key is to start young and not leave the market when it is not doing well. “A standing order, preferably immediately after payday, not to wait for what I will save at the end of the month,” advises analyst Anna Píchová.

An investor who is able to invest 10,000 crowns a year between the ages of 20 and 25 and then let the money grow at 10 percent interest until he is 60 years old will eventually have 1.9 million crowns in his account.

In contrast, an investor who starts saving ten thousand only at age 30 and invests ten thousand every year will end up with 1.6 million in his account at ten percent appreciation at age 60. So he puts in a total of not 50,000 but 300,000, and still ends up with 15 percent less before retirement.

The diametric difference arises thanks to compound interest, which Albert Einstein called the “eighth wonder” of the world. It is based on the reinvestment of what the investor has earned so far through his investment. The longer the investment is held, the more it grows over time.

Every year that we postpone the start of investing plays a role. “Part of this can be caught up by how the person’s behavior and their expenses and income change over the course of their lives. As one progresses in one’s career, one is able to generate more money and invest more. After fifty, on the contrary, he starts to spend less, so he is able to generate more savings,” notes Anna Píchová, chief analyst at Cyrrus.

“For me, even five hundred is good. It’s good to create a habit and let money work, because compound interest simply works,” emphasizes Píchová in the Ve váta podcast. It is no less important to persevere with investing and not to leave the market even when it falls. Those who wait for shares to fall in price may miss the moments of their greatest appreciation.

“There are really only a few of the best days that make a surplus. That’s why it’s good to simply be in the market and wait out big drops. The biggest growths come after the worst days, this is also proven by historical data. About 75 percent of the best days came either in the ongoing bear market, when the market was in decline, or then in the early beginning of the bull market, i.e. new growth,” the analyst summarizes.

If an investor gets spooked when the market goes down and starts selling stocks in a panic, he will lose out on his return. “If he misses the top ten days, he will underperform by 54 percent than if he had held the stock. If he misses the 30 best days, his performance will be 83 percent worse than if he had left the money there,” says Píchová and recommends automating investing.

“Standing order, preferably immediately after payment. Don’t wait to see what I can save at the end of the month,” he advises in the current episode of Ve váta.

Mutual funds or ETFs traded on the stock exchange (exchange traded funds, editor’s note) are suitable for regular investments “with little”.

For beginners, mutual funds have the advantage that they can be bought in crowns, it is not necessary to exchange the currency into euros or dollars, and they can be purchased from one hundred crowns. “In a mutual fund, the nominal value of one share certificate is one crown. When I have five hundred a month, I buy 500 shares,” explains Píchová.

Conversely, the minimum invested amount can be limiting for some ETFs. The best-known dollar ETF on the S&P 500 is SPY, one piece currently costs $520, i.e. roughly 12,000 crowns. “If I had 500 a month, I would send those 500 to my account for two years before I save hypothetically 12 thousand crowns for one ETF. Demotivating. And above all, two years on the market would slip away,” Píchová points out.

Some brokers allow the purchase of “étéefek” fractions. That is, a certain part, for example a tenth. The rest is bought by another client or kept by the broker on its own book.

A beginner does not even have to resist buying individual shares. A quality stock can be found for under ten dollars. “The nominal price we see in that market does not tell us anything about the quality of the company. Even a smaller company can have an interesting valuation or an interesting product, expected growth. An investment can make more sense than in a company whose shares cost, say, a thousand dollars.”

More expensive shares can also be bought in fractions. However, it has its limits, points out Anna Píchová. “I cannot make decisions about the company as a shareholder, I am entitled to a dividend, but only in the amount of my share. The big difference is then in taxation. If I hold fractions, the three-year tax test does not apply.” The income must therefore be taxed.

Listen to the entire podcast in the player above.

In cotton wool