When investing, we tend to focus our attention on the annual return of securities such as stocks or bonds.
Watch out! That is just the tip of the iceberg: taxes, commissions, fees, maintenance and even inflation could hinder the expected annual return.
It could impede the return so much that we could think of not investing at all.
Running Italian numbers
In Italy, if you decided to invest in the well-known S&P 500 index through an ETF, you would have to pay: 26% of your annual return + 80€ annually of other legal fees + 60€ annually for maintenance cost + commissions if you decided to sell the ETF.
Let’s suppose you were to invest 10.000€ (not a small number) in the S&P500 that has an annual average return of 7% (700€ annual return).
That’s how the expenses would look like:
Your return for one year would be €700 – €322 = €378. Moreover, if you decided to cash in the ETF, you would have to subtract the commission cost.
In other words, for locking up 10.000€ for one entire year, you’d receive 378€. It is really sad, isn’t it?
Actually, if you invested just 1.000€, you would end up losing money!
Thinking outside of the box
You want to invest, right? That’s why you’re reading this blog post.
However, you really want to see your money working for you, not for the bank or the government.
Well here are some outside-of-the-box ideas:
- Electric bikes or scooters: Comparing the upfront cost of this device to the annual expense of public transit, you could have an annual return of over 100%. Hypothesizing that the monthly pass costs 50€ and the electric bike or scooter 500€.
- Gym equipment: Depending on the annual membership cost, you could use that money to buy workout equipment for your home. In that way, you would recover your investment in just one year (100% return).
- Led bulb: Depending on your electricity bill, not only it’s better for the environment, but also for your pocket.
- Coffee machine: Spending 150€ in a coffee machine to not buy more coffees on the go is one of the most conventional and useful pieces of advice.
- Solar panels: On one hand, you lower the electricity bill; on the other, you get tax deductions.
- Bottle of water: If you buy one bottle of water a day for 0,50€ every working day, it adds up to €110 annually (hypothesizing 220 workdays a year).
- Buy a car and rent it to a friend so he can do UBER or a similar service.
Not so passive investments
- Buy a car and drive for UBER whenever you like. I’m pretty sure that in a year you would make more than 378€ (even considering gas, insurance, and maintenance cost).
- Buy a normal bike, or an electric bike and deliver food whenever you want with apps like Uber Eats and Glovo.
- Rent out a bigger place and do Airbnb with the extra room, if it’s legal.
Even though is less accountable, invest in your education:
- Language skills
- Courses to improve negotiation skills
If you really like your side hustle, buy or improve the equipment. Here are some examples:
- Cooking and selling homemade bread or pastry.
- Painting nails or doing make-up.
- Streaming on Twitch.
- Doing Youtube videos.
- Growing and selling plants.
In other words, you could scale up your side hustle with the money you were thinking to invest in financial securities.
In that way, you could have a bigger cash flow.
I’m pretty sure the cash flow would increase more than 370€ a year for every €10.000 invested.
Finally, my dream goal: If you had enough money, you could buy a house or an apartment and rent it out.
Remember, first take a good look at the initial down payment (including commissions and legal fees) + mortgage + bills + expected rate of vacancy.
This investment option would dilute your liquidity. However, it is worth pursuing it if you think your conditions would remain the same.
Investment options are out there in a variety of ways. Even if we don’t see them.
Unless you plan to invest a sizable amount of money in financial securities, first think about other viable investment options.
If you do not run the numbers first, you could end up helping the bank and the government to get rich at your expense.