Beware of the financial pitfalls when looking for returns

7 October 2021

Saving used to be a virtue. This was rewarded with an interest on the amount of savings. But times have changed. At the moment, you receive virtually no interest on your savings. Is your “piggy bank” a bit fuller? Then both the tax authorities come along with wealth tax and the bank with a “savings fine”. Not surprisingly, many consumers are looking for an alternative. But beware of the financial pitfalls.

Are cryptocurrencies interesting?

Those looking for returns on wealth stumble over the cheering stories about cryptocurrencies, of which bitcoin is perhaps the best known. The stories all have the same common thread: buy now and become very rich later. Is that going to happen?

There are plenty of reasons to be cautious. We will mention a number of them:

  • The prices of cryptocurrencies fluctuate strongly. This can mean that the moment you want to use the capital invested in cryptocurrencies, the prices can be very low. An example: during the beginning of the corona crisis, the price of bitcoin fell by 63% in March 2020, while the price of gold fell by 8% in the same period;
  • The market for the supply and demand of cryptocurrencies is not transparent and there is usually no legal supervision;
  • Prices are sensitive to price manipulation through, among other things, messages on social media;
  • The transaction costs are relatively high;
  • Many governments report that criminals make intensive use of cryptocurrencies, which cryptocurrencies are under more scrutiny.

Without an underlying value, the absence of appropriate supervision, and moreover, objectively demonstrated maintenance costs by using very large amounts of energy, we advise our clients negatively with regard to this type of investment instrument.

How about renting out a house?

Clients seem to be very interested in buying a (holiday) home to rent it out. In practice, this often means that a large part of the purchase price is borrowed and the remainder is financed with your own money. After purchase, the house will then be rented out for the highest possible amount. This also sounds interesting. But here, too, there are the necessary financial pitfalls. A few examples:

  • Once you own a “rental mortgage”, it is in practice difficult to take out a consumer credit afterward, for example for the purchase of a car;
  • It is tempting to start from the idea that real estate only increases in value. The reality is different;
  • More and more municipalities are taking measures to combat this type of investment and are demanding “self-residency”;
  • The costs of maintenance, insurance and other costs are often underestimated, but do affect the intended return;
  • Rental also means “tenants”. And tenants have (legal) rights that you as a landlord must take into account. Are you a “landlord person”?

Provide a buffer

In our opinion, the Dutch consumer budgeting organization NIBUD gives its wise advice to keep at least a certain amount of cash separate to cover unexpected expenses. How high should that buffer be? That’s different for everyone. But NIBUD has developed a handy tool for this. Our advice: please check the outcome for your own situation (the tool is in Dutch only).

Invest monthly in a stable and reliable fund

Do you have sufficient financial buffer? And do you still want more return than the bank gives you on your savings? Then consider investing a monthly amount. This can be done with a relatively small amount, often from € 50, -. If you do this over a longer period, you will see those periods in which prices are in a dip are more than compensated by periods when prices are strongly in the plus. On balance, the return over a longer period is much more positive than over a savings account. And in our opinion, many of the potential pitfalls when investing in crypto or real estate are larger.

Questions or advice

Do you want to start investing? Please contact us or any other qualified and experienced advisor/intermediary. Because we understand that it can be exciting and complicated to just make a choice. And perhaps extra interesting: you can also opt for mutual funds and invest them in a sustainable way.

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