1. What is Investing?

Investing is the process of buying an asset, like shares in a company, with the expectation of profiting over time. Almost everybody holds investments, even if they don’t realise it. If you for instance have a workplace pension (Dk: Firmapension), you are an investor!

Investing is necessary because the spending power of money reduces over time, due to inflation (meaning that the cost of buying goods, housing, and services goes up over time). As history shows, savings accounts (Dk: Opsparingskonto) pay interest (Dk: Renter) at a lower rate than inflation, and so even if the cash balance itself doesn’t appear to reduce, the spending power of that money does.

The longer you hold cash savings for, the more dramatically inflation erodes their value. This is why your workplace pension is invested – over such a long period, it would be impossible to save enough to fund your retirement using cash savings. Investing your money allows your savings to grow faster than inflation.

A JPMorgan graph illustrates that money invested in stocks in 1901 and held until 2020 has generated an average annual return of 5% with the good and bad years evened out.

In contrast, short-term investment strategies can be highly volatile and prone to significant fluctuations. For example, the outbreak of the COVID-19 pandemic in 2020 caused global stock markets to plunge over 20% within a single month, between February and March. Therefore, it is highly advisable to ensure investments are only made with long-term objectives in mind.

Time in the market (long-term investments) beats timing the market (short-term investments to get rich quick)