Investing in economic uncertainty
What if I told you that there is an investment strategy that even the most inexperienced can benefit from: Index funds? It is a good way to invest in economic uncertainty.
What is an index fund? Just like a buffet at a popular restaurant, instead of choosing just one dish (or stock), you get a bit of everything on offer. That means you enjoy a taste of all the best recipes, no matter which cuisine (or company) is the flavor of the month. It is a diversified approach that allows you to enjoy the full range without relying on a single choice.
The other night I had an eye-opening conversation with one of our content creators. I introduced him to the world of index funds, explaining the historical returns and the power of compound interest over 20+ years. His reaction? Sheer amazement.
“If it’s so easy, why doesn’t everyone do this?” he asked in confusion. This is a good question.
Why doesn’t everyone do it?
There are several reasons. Maybe some people lack understanding, maybe others prefer the excitement and risk of trying to get higher returns, or maybe it is due to personal beliefs, financial goals, risk tolerance or economic factors.
Sometimes even the perception of the simplicity of index funds can be a deterrent.
So why should I invest in index funds?
1. Simplicity and accessibility
Index funds offer a simple and accessible way to invest. You can enjoy the top 100 stocks without picking and choosing. It’s a relaxed yet effective approach, with returns that can be surprisingly rewarding.
2. The magic of interest on interest
With the right approach, even small investments can grow significantly over time. Consider the S&P/ASX 200, one of Australia’s benchmark indices, which has delivered an average annual return of around 8.1% over the past 20 years. Here are some fun scenarios to visualize the returns:
– Scenario 1: Invest SEK 20,000 in an index fund with an average return of 8%. Invest €1,000 a month in your portfolio. In 20 years it turns into 600,000+.
– Scenario 2: Let’s increase the initial investment to SEK 100 000. In 20 years, you would have more than €1 million.
These examples show the incredible growth potential of a small initial investment.
3. It is more beneficial during economic uncertainty
Investing in times of economic uncertainty may seem counterintuitive, but index funds are built to weather the storm. Diversification provides a shock absorber and spreads risks across different sectors. Instead of putting all your eggs in one basket, index funds spread them out, providing a sense of stability.
During volatility, traditional investment routes can fall, but a well-structured index fund adapts and survives. It’s about playing the long game, maintaining your position and enjoying the consistent growth that can outpace inflation.
“We always try to be fully invested during a downturn,” said the hosts of the QAV investment podcast.
“Historically, the biggest single positive days in the market have come when a downturn bounces back, but you can never predict when they will happen. If you miss those days, you could miss out on half the upside for a whole cycle.
The youthful advantage: Gen-Z perspective
Being part of the youthful Gen Z, I can recommend the importance of starting early. Economic uncertainty need not be an obstacle. This could be a possibility. The power of interest on interest is even more powerful with our best weapon, time.
Time is on our side and despite economic noise, a strategy focused on index funds can turn uncertainty into an advantage. Embrace the fluctuations, learn the art of patience and grow your investments.
In our fast-moving, ever-changing world, economic uncertainty is a reality that we all have to face. But instead of fearing it, why not embrace it as an opportunity? The powerful magic of compound interest, the simplicity and stability of index funds and the youthful energy of starting early are all within reach.
Sometimes you don’t need to be smart to invest, you just need to be patient.
About the Viking
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