What to do with little money?

[northwind]

Hey! So, I’m definitely not rich, and looking at the amount of savings I managed to get over the past years, I’m rather realistic about ever being able to make more than I do with my current job. I mean, I love what I do, but it’s not gonna get me far with money. I have around 15k EUR in my account, and since last year I’m able yo save monthly around 500 EUR. It’s very little in compare to the amounts some people ask here about. Nevertheless, I live in Germany, am a EU citizen and I just hate that my money sits in my free account without any investment - short or long. I’m also very new to the topic of saving and investing.
That’s why I’m wondering, if somebody has here more experience, what would you do in my shoes? Start playing with Trade Republic/investing, getting some private pension plan, or I also saw DKB has 3% depot for 6 months.
I’d like to start from something, but I’m just overwhelmed by all the posts or infos I’ve been reading. And definitely I wouldn’t like to loose money…

 

[lukelight]

@northwind

I live in Germany

/r/Finanzen is this way.

 

[crybaby2384]

@northwind 500€ per month is actually a lot, if this is the amount you can live without every month.

I would nudge you towards r/Fire, but don't just take my word for it. It's your money, do research meticulously.

For a general idea https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Assuming you're:

• starting with 0€ in investing (15k€ should be your emergency fund - always easily accessible)
• can do this for 20 years before expected retirement date
• average returns minus inflation 8%
• monthly deposits of 500€ in world diversified ETF (like VWCE)

you would have about 285k€ invested at retirement. 4% rule says you can withdraw 20k€ per year without investment number going down. But if you want to die with zero, and assuming you'll live in retirement for 40 years you can withdraw 23k€ per year for the rest of your life. This is assuming you don't get any pension or money elsewhere.

This example has a lot of assumptions that you have to change for your specific situation. But it's just research and math.

 

[janetmal]

@crybaby2384 An 8% real return is very optimistic, the global average has been around 5% in the last hundred years or so. You'd get to around 203k (in today's money) with that kind of return. With a more conservative 3.5% withdrawal, you can withdraw around 7k per year (which is a nice supplement, but you need more income).

I'm not sure how you got to 20k in your example, 4% of 285k is around 11k.

So yeah, the way of thinking definitely makes sense, but the numbers need to be adapted IMO

 

[comforter]

@janetmal Don't look at the global average for your investment portfolio, look at better indices like the S&P 500 or VTSAX. 10% returns with 7% inflation adjusted is what all the FIRE calculators use for good reason and even over the long term can a 4% withdrawal rate hold up for a lifetime in the vast majority of cases.

Considering Germany has social welfare like unemployment benefits, an emergency fund of 15k is overkill unless they spend a lot every month. If OP were to start with dumping 10k into the S&P 500 and keep adding 500 a month for 28 years, they'll be a millionaire. If you adjust it for inflation it'll take them 35. If you add government and employer pension plans to the equation and take into consideration that they'll earn more and more over their careers, they could even retire earlier

 

[janetmal]

@comforter Plannning based on a historical outlier (the US stock market) is way too optimistic IMO and could lead to bad surprises. I don't want to get into this discussion though, there's plenty of material online discussing this for whoever is interested.

 

[comforter]

@janetmal The S&P 500 doesn't just consist of companies that operate solely in America, most are very international and give a good global coverage. If you backtest it, they held the average of 10% per year (not inflation adjusted) for over a 100 years. It's pessimistic to not consider it a worthy option considering even world wars, the great depression, the dotcom bubble, and other massive crashes are all priced in

 

[crybaby2384]

@janetmal It's just an example on how to use the calculator. OP should start somewhere, I just wanted to give him something tangible to start with. Also so show him that he can do a lot with 500€ per month if done wisely.

I like 8% for ETFs, but you do you. Only time will tell. And I'm not counting only on ETFs.