Investing Basicsi. Inflation
0%

Investing Basics

Putting money to work against inflation over time through markets, funds, and a strategy built for your risk profile.

FinanceRead time15 minLast updatedJune 2026LevelBeginnerSections9
In this module

Investing is how savings beat inflation over time. This module covers compound growth, market basics, diversification, and how to keep fees from eroding your returns.

By the end you'll

  • ✓Understand why inflation makes doing nothing with your savings costly over time
  • ✓Know how compound growth works and why starting early tends to matter more than the amount
  • ✓Identify the key risks and how diversification helps manage them
9 sections≈ 19 min total

…

iInflation

What is Inflation and Why Does It Matter?

Inflation is the gradual rise in prices of everyday things like food, rent, clothes, and energy. When prices go up, your money buys less than it used to. This is called loss of purchasing power.

A real-life example from the Netherlands:

Some prices have risen sharply: a large portion of patat oorlog (fries with mayo, peanut sauce, and onions) that cost around €2.50–€3.00 in 2015 now often costs €4.50–€5.50 in 2025. That's an outlier driven partly by rising labor and ingredient costs; overall Dutch consumer prices (CBS CPI) rose by roughly 30% over the same decade, meaningful but not double. If your money was sitting in a low-interest savings account, its purchasing power still shrank.

What causes inflation?

  • →

    Too much demand: When many people want the same things, prices rise.

  • →

    Higher costs for companies: If oil, ingredients, or wages increase, companies charge more.

  • →

    More money in the economy: Central banks can increase the money supply, which can push prices higher.

What are central banks? A central bank (like the European Central Bank, or ECB, for the euro zone) manages a country or region's money. Their main goal is to keep prices stable, aiming for about 2% inflation per year (a little inflation is seen as healthy for the economy).
Do central banks really “print money”? Not usually with physical paper anymore. Most money is digital. When people say “printing money,” they mean the central bank creates new digital money, for example by buying government bonds or lowering interest rates so banks lend more. During crises (like COVID), the ECB did large-scale bond buying with newly created money, sometimes called “printing.” Too much can lead to higher inflation.

How does inflation affect you?

  • →

    Bad for savers: If inflation is 3% and your savings account pays only 0.5%, you’re actually losing money in real terms.

  • →

    Good for investors: Over long periods, diversified stock market investments (especially global ETFs) have returned around 7–10% per year on average, far above inflation.

Why do stocks and ETFs usually beat inflation?

Companies can raise prices, improve efficiency, and grow profits over time. A broad ETF owns thousands of companies worldwide, so it captures overall economic growth, which historically has been stronger than inflation.

Houses are assets, not everyday goods, but their prices often rise faster than general inflation due to limited supply and high demand. In the Netherlands, average house prices went from ~€250,000 in 2015 to over €450,000 in 2025, much faster than general inflation.

Key takeaway: After building your emergency fund, keeping extra money in low-interest savings slowly loses value. Investing in diversified assets like global ETFs is one of the most reliable approaches for beginners to protect and grow wealth against inflation over time.
iiCompound growth

Compound Growth

Compound growth is when your investment earns returns, and those returns generate even more returns over time, like a snowball getting bigger.

Try the Compound Calculator

Future Value: €122,708.749

iiiMarkets

What Are Financial Markets?

Markets are where buyers and sellers trade assets like stocks, bonds, and funds. Prices fluctuate based on supply, demand, company performance, and global events.

  • →

    Stock markets reflect thousands of companies worldwide

  • →

    Over decades, markets have trended upward despite short-term drops

  • →

    Broad index funds let you invest in the entire market easily

ivRisk

Understanding Investment Risks

All investing involves risk, but not all risks are equal. Understanding and managing them is the core of any strategy.

Market Risk
Prices can fall due to economic events, recessions, or crises
Inflation Risk
Your money loses purchasing power if returns don't beat inflation
Interest Rate Risk
Bond prices fall when interest rates rise
Credit Risk
Companies or governments may default on bonds
Liquidity Risk
Some assets are harder to sell quickly without loss
vDiversification

Diversification

Diversification means spreading your money across many assets so no single failure hurts you much.

Risk Assets (Stocks, ETFs)
Higher potential returns, higher volatility
Safe Assets (Government Bonds, Cash)
Lower returns, much more stable
A broad world ETF such as VWCE or IWDA gives you exposure to thousands of companies across developed and emerging markets. A single-country ETF such as VUSA or CSPX gives you the S&P 500, which is broad within the US but not globally diversified, so a US-specific downturn would hit your full portfolio.
viPortfolio

Portfolio Allocation by Age

Your ideal mix of risk vs safe assets changes with time and life stage.

  1. 01

    Young (20s–30s): a common starting point is 80–100% stocks, but the right mix depends on your risk tolerance, job stability, and whether you'll need the money in the next 5 years. If you'd panic-sell during a 40% drop, hold less in stocks.

  2. 02

    Mid-career (40s–50s): often 60–90% stocks, still growth-focused but with more bonds or cash as a buffer. Adjust down if a big expense (house, kids' education) is coming up soon.

  3. 03

    Near retirement (60+): often 30–60% stocks, to preserve capital while still beating inflation. Note that retirement can last 20–30 years, so going all-bonds usually under-shoots inflation.

Common Beginner Mistakes to Avoid

  • →

    Making emotional decisions during market drops

  • →

    Putting everything in one stock or sector

  • →

    Trying to time the market instead of time in the market

  • →

    Choosing expensive active funds over low-cost ETFs

  • →

    Investing without clear goals or strategy

viiBrokers & fees

Choosing a Broker and Understanding Fees

A broker is the platform where you buy and sell investments.

Look for low or no trading fees, a good ETF selection, and regulatory reliability. Brokers commonly used by European retail investors include DEGIRO, Interactive Brokers, and Vanguard. We have no commercial relationship with any of them, and the comparison below uses publicly available fee schedules. Always check the latest official pricing on the broker's own site.

Watch out for transaction fees, currency conversion fees, inactivity fees, and fund expense ratios
Look for low expense ratios: under 0.3% is reasonable for a broad index ETF. Accumulating ETFs (dividends reinvested automatically) are often more tax-efficient when capital gains are taxed more favorably than dividends, but check the rules in your country; distributing ETFs can be the better choice in some jurisdictions or if you want income in retirement.

Preparing for Market Drawdowns

Markets drop 10–50% periodically. Having a plan helps you stay the course.

  • →

    Stay invested: time in market beats timing the market

  • →

    Keep investing monthly (buy more when prices are low)

  • →

    Have 3–6 months emergency fund so you never sell investments in panic

  • →

    Rebalance yearly to maintain your target allocation

Choose Your Broker & ETF – Let's Compare

Compare costs and long-term projected results for popular European brokers.

Broker Comparison: €200/month in VUSA (S&P 500 ETF)

Annual and 30-year costs for a popular S&P 500 ETF

We have no commercial or affiliate relationship with any broker listed below. Figures come from each broker's publicly available fee schedule and may have changed — always verify the latest pricing on the broker's own website before opening an account.

DEGIROInteractive BrokersING Beleggen
VUSA Transaction Fee€0 (Core Selection)€3 fixed€8
Currency Conversion Fee0.25%0.002%0.25%
Annual Service Fee€0€0 (for small accounts)€20/quarter + 0.24% annual
Annual Cost (€200/month)~€6~€36~€176
Total Fees Over 30 Years~€180~€1,080~€20,880

Choosing the right broker can save you thousands of euros over 30 years!

Disclaimer: Fees are approximate and based on current pricing as of December 2025. Transaction fees assume buying VWCE/VUSA in the Core Selection (DEGIRO) or standard rates. Currency conversion fees apply when buying USD-listed ETFs with EUR. ING includes quarterly service fees (0.24% annual + fixed). Always check the latest broker pricing, as fees can change.

What Could €200 per Month Grow To in 30 Years?

After fees, using VUSA with DEGIRO (lowest-cost option)

Conservative Scenario (6% annual)

Includes prolonged high inflation and multiple bear markets

€190,000

Final value after low fees (nominal)

≈ €105,000 in today's purchasing power (after ~2% annual inflation)

Historical Average (8% annual)

Realistic long-term return after tougher periods

€272,000

Final value after low fees (nominal)

≈ €150,000 in today's purchasing power (after ~2% annual inflation)

Strong Growth (10% annual)

Matches long-term S&P 500 average in good periods

€452,000

Final value after low fees (nominal)

≈ €250,000 in today's purchasing power (after ~2% annual inflation)

Total invested: €72,000. All figures above are nominal — i.e. the future euro amount, before adjusting for inflation. Past performance is no guarantee of future results.

Important: These projections are based on historical average returns of broad stock market indices (like the S&P 500 or global ETFs). Past performance is no guarantee of future results. Markets can go down as well as up, and you may get back less than you invest. The actual returns will depend on future market conditions, fees, taxes, and your investment choices. This is for educational purposes only and is not financial advice.

Track Your Investment Portfolio

Add your positions, record monthly contributions, and monitor your total portfolio value.

Log in to track investments
viiiFlashcards

Flashcards

All cards →
ixModule quiz
Module Quiz

Answer correctly to complete the module. Pass mark: 4/5.

Loading...

Sources & inspiration

See the full library → →
← Previous

Emergency Savings

Next in Finance

Pension Planning

Open module →
Investing Basics