In Spain, it is difficult for us to create wealth with our savings. This is a reality that can be felt in many ways, such as the amount of money that Spaniards have historically invested in products that barely generate a return, such as bank deposits, or even in what they leave in their current account. In both instruments, in addition to the money they also keep in cash, Spaniards save more than one trillion euros. According to the latest data from Inverco, this trillion euros represents no less than 37% of financial wealth. “The Spanish investor continues to invest little in financial assets compared to other countries in the eurozone,” recalled recently Montserrat Martínez Parera, vice-president of the National Securities Market Commission (CNMV). And as long as this continues and there is no leap towards other financial assets that are somewhat more complex than deposits, such as the stock market, fixed income, investment funds or pension plans, the Spanish saver is depriving himself of this opportunity. create wealth with your savings and even just protect it from inflation, which is the main goal of any investment, to avoid losing purchasing power.
The difference between saving and investing is clear. This is observed in any theoretical lesson. exampleone who is able to separate 100 euros every month in the piggy bank for 20 years At the end of this time, you will have 24,100 euros. On the other hand, if you invest the same 100 euros per month in a conservative asset that generates a constant return of 2% per year over these two decades, these 24,100 euros will turn into 29,900 euros. The gap between the two figures logically increases as profitability increases.
So if instead of 2% the investor were to achieve an annual return of 7%, which is more typical for the stock market, those 24,100 euros would more than double to become 53,000 euros. And if instead of getting 7% the annual return of 10% was achieved, which is possible by investing in venture capital products, we would be talking about the 24,100 euros that were earned by saving in the piggy bank becoming more than 77,000 euros. That is, The difference between savings and investment will be almost 53,000 euros. (see graph).
This is just an example and of course does not reflect the reality (or needs) of all investors. That is why, elEconomista.es has developed a calculator that allows you to personalize these variables and adapt them to each specific case.. With this tool, a saver can simulate what would happen to their money if they took the step of investing instead of saving, choosing the amount they want to contribute each month, the period over which the investment will last, and also allows you to add three return assumptions so you can see how your money grows in each of them compared to what would happen if you just left the money in the checking account. To make the calculations, it was assumed that the return the investor would receive would remain constant over the chosen period, which is not realistic since volatility exists in every investment. But This gives you an idea of how important it is to make your money work for you.
In the long term, the most profitable asset is the stock market. For now, the Spanish hold a trillion euros in deposits and current accounts,”There is a historical chart that explains how much a dollar was worth in 1800 and how much it is worth today, 200 years later, depending on the asset you invested in. If you invest in shares, that dollar is worth $2 million today. No one is going to live 200 years, but it illustrates very well what is profitable to invest and why the Anglo-Saxons generate much more wealth from their own savings. In Europe in general and in Spain in particular, we do not create wealth from our own savings, but it is a question of information and security. Now Spanish savers have taken the first step by investing in Letras, and it is likely that there will be a migration from savers to investors, but it will be a very slow process,” explained Javier Galan, director of variable income investments at Renta 4, in recent statements to this newspaper.
What financial knowledge do we Spaniards have?
It is clear that variable income is not suitable for all investor profiles, and especially not in Spain, where the majority still consider themselves conservative. But There are different alternatives for each type of investor. For example, for those who are more risk-averse, Treasury bills, short-term fixed income, or more conservatively slanted mutual funds like money funds are suitable. You can also combine this asset with another piece of variable income and maximize returns if the investor’s risk profile allows it. There are several options. What is missing for someone who saves to become an investor has more to do with their own financial culture.
Only 19% of Spaniards correctly answer three questions about basic financial concepts.
The Bank of Spain is one of the organisations that measures the financial skills of the Spanish population. through a survey that assesses the understanding of basic financial concepts, the degree of knowledge of various financial savings instruments, their ownership and acquisition, and the use of these instruments among the Spanish population aged 18 to 79 years.
Financial concepts covered include inflation, compound interest, and risk diversification. To answer the question about inflation correctly, you need to understand that the amount of money you will receive in the future loses purchasing power when prices rise, explains the Bank of Spain in its Financial Skills Survey. To answer the question about compound interest correctly, you need to understand that the change in the amount saved in a bank account over five years depends not only on the annual interest rate applied to the amount saved in the first year, but also on the interest accrued since then. And to answer the question about risk diversification correctly, you need to understand that the risk associated with investing in shares is reduced if you buy a wide range of shares rather than just one type of share. “Only 19% of respondents correctly answered the three questions asked on these aspects. These results show that there is much room for improvement,” the Bank of Spain said in its blog.
Inflation is a silent thief
According to the same survey, only 65% of Spaniards surveyed have a good understanding of how inflation affects savings, when it is the main enemy of the wallet. “Yes, inflation makes you lose money. But how much? From 2021 to 2024, the accumulated consumer price index (CPI) in Spain was 17.9%. That is, prices increased by almost 18% during this period. Let’s imagine that at the beginning of 2021 you put 10,000 euros in a bank account as savings. By reversing the CPI, we get that this money has lost more than 15% of its purchasing power by June 2024; if you saved 10,000 euros, inflation has made you lose more than 1,500 euros,” Cobas AM explains. “The big problem is that millions of people in the world have significant amounts of savings in bank accounts. These are mainly people with middle and low incomes who do not have the financial knowledge to invest their money. The way to prevent inflation from eating away at our savings and even to earn a return that exceeds price increases is through investment.“, they are developing.
XTB: “We are one of the countries where money is the least productive for citizens.”
According to the European Central Bank, Spain is the second country in the European Union with the highest percentage of its citizens’ money kept in current accounts, behind only Germany.. “At the end of November last year, Spaniards had 866 billion euros in current accounts, compared to 847 billion for the Italians and 589 thousand for the French. A figure that is truly astonishing if we take into account that the average national income in our country is significantly lower than in these two countries, which means that if we adjust these data for wealth, we clearly see that there is a serious problem of capital accumulation without any profit. “This does not generate profits or contribute to reducing debt, but rather reflects to a greater extent the fact that we are one of the economies where money is most unproductive for citizens,” says the XTB report entitled “The Future of Savings in Spain.”
Recently, “there has been a realisation that you have to be an investor. Outside of Spain, countries like London and France have a higher financial culture and a more understandable risk aversion because obviously “The risk now, when there is inflation, is not in investing”says Thomas Pinto, director of international variable income at Bestinver, who is confident in the role that will be played by new generations, who he believes have a much better understanding of investing.
“The money is in the older generations, and these generations are very locked in banks, and it is difficult for them to get out. But I trust the younger generation, “I believe they will ask questions and if all goes well, these generations will have money and things will gradually change,” agrees David Ardura, investment director at Finaccess Value. “Maybe this process will take 20 years? “They will be well employed if we make our children understand that we need to invest and that we need to live off these capitalized savings.”
Basic Guide: Stock Market Returns, Fixed Income…
When planning any investment, it is also important to have a rough idea of what kind of return can be achieved with each asset. Basic Guideamong the most conservative options, Treasury bill After one year, it offers an average interest rate of 3.37% – this yield changes with each placement and is expected to trend lower as the ECB cuts rates further. depositHowever, the average yield paid by the sector is around 2.4% per year. If a little more risk is assumed, the expected return diversified fixed income portfolio It is currently at 3.73% on Bloomberg and Barclays indices; for now Stock market reaches 6.29% – This figure is calculated taking into account the expected earnings multiple for the US and European stock markets next year.