Investing

Savings provide a sense of security

Where to keep saved money until you need it or how to increase saved money? There are endless investment opportunities and finding a suitable one comes down to your preference. Ask yourself:

What is my goal in saving money?
What kind of a risk am I willing to take?
How long do I want to deposit or collect money?
What are my expectations regarding revenue?

The first rule of investing is to start sooner than later as time is usually in favour of the investor.

Investing is always preceded by saving as you should only invest what you don’t use daily.

If you don’t have a savings buffer, start collecting it. Read more on investing and only then invest. Research different investment possibilities as well as their pros and cons, read books, online forums and blogs on investing, have a look at saving and investing topics on the financial wisdom Facebook group #Kogumispäevik and talk to your bank consultant, if needed.

Investments always involve the risk of losing your money. So make sure to set an amount you are willing to loose and choose an appropriate investment strategy.

You can invest in different asset classes (e.g. equities, bonds, real estate, funds) with different risk levels. The general rule is that the greater the risk, the greater the prospective return.

If these options are not suitable for you, there are other possibilities, such as investing in real estate or companies via crowdfunding platforms. Avoid scams promising fast money: pyramid schemes or shady and fast transactions that seem too good to be true. Usually they are.

If you’re a novice in investing money and would like some peace of mind, consult an investment advisor who will help you in determining your risk appetite and offer various possibilities to collect and invest money.

An important aspect of investing is time. The sooner you start, the more time you will have to grow your assets.

Your timeframe and goal should also dictate your investment strategy – the more time you have, the more risks you can take; the less time you want to invest for, the more conservative you should be.

Follow these guidelines for a successful investment:

When investing, consider the increase in the value of the invested or collected money as well as taxes, transaction costs and inflation
Diversify risks by implementing different ways of saving and investing
Make decisions based on your risk tolerance
Stick to your plan and goals and avoid emotional decisions

It’s wise to prepare for retirement

If you plan for retirement early on, it will be easier to receive the desired amount during pension; the sooner you start saving, the more you will have. The I and II pillar will amount to only about 40% of your pre-retirement salary. The rest you will have to collect yourself.

There are many myths and misconceptions when it comes to retirement. Next, we will explain some of them so you can make better decision when saving money.

Myth 1: Only banks benefit from pillar pension funds
It’s a common misconception that saving in pillar pension funds is not reasonable, many pillar pension funds continue to be negative and only serve the interests of banks. The truth is that the value of most II pillar pension funds is currently excellent. Those saving in III pillar pension funds have also done well. It’s also worth a mention that the government rewards long-term saving with an annual tax refund.
Myth 2: There is no need to prepare for retirement as I won’t live that long
According to Statistics Estonia, one in five Estonian men celebrates their 86th birthday and one in five women their 91th birthday. Our average life expectancy will further increase thanks to medical developments and constant improvements in our living environment. As a result, most people will get to enjoy retirement.
Myth 3: You cannot bequeath collected pension
One of the most common myths is that the II and III pillar pension funds cannot be bequeathed and the money saved over years will not reach your loved ones. In reality, both the involuntary II and the voluntary III pillar pension funds can be bequeathed during the collection as well as the payout period. So if you can’t use the collected money yourself, your loved ones will.
Myth 4: State pension will be enough
Many studies indicate that people’s expectations regarding retirement are much higher than what the state pension enables. The reality is that when you retire, you will be faced with a steep, up to a 60% decrease in income. Would you manage if your income would suddenly decrease by over a half?

The pension system “Pensionikeskus” offers information on whether you have joined a funded pension, whether and how much will your state pension decrease when joining a funded pension, when you will start receiving payouts, etc.

Pension system “Pensionikeskus”