How do I start investing?

Most Icelanders want to invest but often don't seem to know how to get started. One reason is that many people find investing too complicated. Lately I've become very interested in behavioral finance, which looks at why we behave the way we do when it comes to finance. What I find most fascinating is that we often behave quite differently from what financial theory says we should do. I’ve always been quite thrifty and have found it hard to spend money on things I don’t really need. By the same token, I've always found it hard to watch the people around me handle their money unwisely. I want to do my part to improve financial literacy in Iceland, and that is a big reason I work at Spesía. One thing I'd like to get across about investing is that, although it may seem complicated, you don't need to be an expert or have a lot of money to become an investor. You just need to start.

Icelanders are good at saving. According to a recent study, 69% of the public saves regularly, and this share has not been higher since Gallup began measuring in 2007. The survey found that 28.2% of Icelanders own domestic stocks or hold domestic funds, while only 8.1% own foreign stocks or foreign funds. Around 66% own no securities at all. The same survey found that the public is generally positive about buying securities and stocks, as noted at the start of this article, but the main reasons people don't invest their savings in stocks or bonds are a lack of funds and the feeling that such investments are too complicated.

At Spesía we want to change that. Here are some useful tips on how to get started investing:

Step 1: Put investing in the context of your household budget

Before you start investing, it's wise to have an emergency fund. We never know what the future holds, so it's good to have a fund that catches you if something unexpected happens. A common rule of thumb is to start by building an emergency fund equal to at least three months of expenses and keep it in an easily accessible savings account.

If you have expensive debt, such as an overdraft, a car loan or other consumer loans, it's usually wise to pay it down before you start investing. The interest on such debt is usually much higher than what you can expect to earn from investments, so you effectively get a higher return by paying it off first.

Step 2: Find your investment approach

There are many ways to invest, and not all of them involve having to follow the financial markets and the news in search of opportunities. It's important to have a well-diversified portfolio, and for the balance between higher-risk and safer assets to match your time horizon and your tolerance for market fluctuations. If you're not sure where to start, one of the simplest and smartest ways is probably to use an automated investment service like the one Spesía offers. That way you invest in a well-diversified portfolio of international equities and Icelandic bonds, based on your risk profile and goals, without having to select and monitor the investments yourself. You can read more about how this works in The Spesía way of investing.

Step 3: Don't wait for the right time

Some people wait years for the "right time" to start investing, but no one can really say when markets will rise or fall. History shows that those who start early and invest regularly, for example monthly, generally achieve better results over the long term than those who try to time the market. Remember that time is on your side. The sooner you start, the more time your money has to grow with the help of compound interest. Here, Georg, Spesía's CEO, goes into more detail on how compound interest works.

So, start with a small amount and invest regularly, rather than waiting for the perfect moment to put everything in at once.

Step 4: Keep an eye on costs

Pay close attention to what you pay in fees. The difference between 1% and 3% in annual costs may sound small, but the higher figure eats up an astonishing share of your returns over the long term. On our fees and cost page you can find more on how fees affect your returns.

Step 5: Then try to forget about it

Once you've started investing, and perhaps even set up automatic recurring investments, the final step is simply to carry on and leave your money alone, so it has the chance to grow. It can be emotionally hard when the market falls, but there will always be both ups and downs. Be patient and keep your long-term goal in mind.

In short

Have an emergency fund, pay off expensive debt, then start investing in a well-diversified international portfolio that suits your time horizon. Do it regularly, and don't wait for the perfect moment.

Spesía can help you choose a portfolio that suits your goals. It's not more complicated than that, the rest is patience.