Arthur, the short answer is: no, it is not okay. Cash sitting in a bank account is not safe. It is not neutral. It is losing value every single day — slowly, silently, and with mathematical certainty. This letter explains why, and what you should do instead.
Inflation. The tax nobody talks about.
You have probably heard the word inflation. Here is what it actually means in your life: the things you buy get more expensive every year. A coffee that cost €1.50 in 2010 costs €2.20 today. A flat that cost €300,000 in 2005 costs €500,000 now. Prices go up. Always. Every year.
In Europe, prices have risen by roughly 2.5% per year on average over the past 25 years. That sounds small. It is not. Here is what 2.5% inflation does to €100,000 sitting in a bank account over time — not the number on your screen, but what it can actually buy:
The euros are still there. They just buy half as much.
And a savings account paying 1% interest does not save you. After inflation, you are still losing ground every year — just more slowly. You are not protecting your money. You are watching it shrink, one percent at a time.
But the number in my bank account doesn't go down. How am I losing money?
Think of it this way. Imagine you could buy 100 loaves of bread with €100 today. Next year, with 2.5% inflation, those same 100 loaves cost €102.50. Your €100 still says €100 — but now it only buys 97 loaves. The year after, 95 loaves. After 30 years of this, your €100 only buys about 47 loaves. The money looks the same. The purchasing power has been cut in half. That is inflation. That is what happens to your savings account.
After 10 years — just 10 years — the gap is already startling. Here is what your €100,000 is actually worth in each scenario:
| Year | Cash — real value | Savings at 1% | Invested at 7.5% |
|---|---|---|---|
| Today | €100,000 | €100,000 | €100,000 |
| Year 5 | €88,385 | €92,894 | €143,563 |
| Year 10 | €78,120 | €86,293 | €206,103 |
| Year 15 | €69,047 | €80,161 | €295,888 |
| Year 20 | €61,027 | €74,465 | €424,785 |
| Year 25 | €53,939 | €69,173 | €609,834 |
| Year 30 | €47,674 | €64,258 | €875,496 |
Compounding. The only genuinely free lunch in finance.
Here is a concept that sounds complicated but is actually very simple: compounding means your gains make gains.
Imagine you invest €1,000 and it earns 7.5% in year one. You now have €1,075. In year two, you earn 7.5% not just on your original €1,000 — but on the full €1,075. So you earn €80.63 instead of €75. The year after, 7.5% on €1,155.63. And so on. Each year, the pile you are earning interest on is a little bit bigger. Slowly at first. Then dramatically.
Albert Einstein allegedly called compounding the eighth wonder of the world. Whether he said it or not, the maths is undeniable. The longer you are invested, the more absurd the gap between "investing early" and "waiting" becomes.
Okay, but I don't have €100,000 to invest. I can only save €500 a month. Does compounding still work for me?
Absolutely. In fact, regular small amounts benefit from compounding even more than a single lump sum — because every month you invest, those euros start compounding immediately. Here is what €500 a month does over 30 years at 7.5% annual return. Pay close attention to the split between what you put in and what the market adds on top.
Let that sink in. After 30 years:
| Year | You put in | Market added on top | Total |
|---|---|---|---|
| Year 5 | €30,000 | €6,264 | €36,264 |
| Year 10 | €60,000 | €28,965 | €88,965 |
| Year 15 | €90,000 | €75,556 | €165,556 |
| Year 18 | €108,000 | €119,300 | €227,300 |
| Year 25 | €150,000 | €288,630 | €438,630 |
| Year 30 | €180,000 | €493,723 | €673,723 |
You contributed €180,000. The market added €493,723. You put in 27 cents of every euro in that portfolio. The market put in 73 cents. And this was from just €500 a month — less than most people spend on dining out.
The critical point: the crossover happens at year 18. From that moment on, the market is earning more for you per year than you are investing yourself. You cannot reach that crossover unless you start — and you cannot stay there unless you never stop.
What if I wait a few years until I earn more, and then start investing bigger amounts?
That is the most expensive mistake in investing. The first euros you invest are the most valuable ones, because they have the most time to compound. Waiting 5 years to invest €100,000 costs you €265,000 in final wealth. Waiting 10 years costs you €450,000. You cannot buy back time. The right moment to start is always now, with whatever you have.
What you should invest in. And what to avoid.
Investing does not mean picking stocks or watching markets every day. For most people — and this is the consensus view of professional investors with decades of experience — the right answer is simple: low-cost funds that own a slice of the entire world economy.
These are called index funds or ETFs (Exchange-Traded Funds). When you buy one, you are effectively buying a tiny piece of thousands of companies at once — Apple, Samsung, Nestlé, Shell, Toyota, and 1,400 others. If the world economy grows over the next 30 years (and historically, it always has), your investment grows with it. You do not need to pick winners. You own everything.
But what if I buy one and the market crashes? Won't I lose everything?
No. A crash means prices fall temporarily — they do not mean companies cease to exist. The S&P 500 (the 500 largest US companies) fell 57% in 2008–09. By 2013 it had fully recovered. By 2024 it was more than three times higher than its 2007 peak. Every major crash in history has been followed by a recovery and new highs. The risk of investing is temporary loss. The risk of not investing is permanent loss to inflation. Those are not equivalent risks.
What should I actually hold?
- A world equity index fund. Something like the iShares MSCI World ETF, which owns 1,400 of the largest companies across 23 countries. You own a slice of the global economy for a fee of roughly 0.2% per year. This is the core of any long-term portfolio.
- Some bonds, depending on your age. Bonds are loans to governments or companies. They pay regular income and tend to fall less sharply than equities in a crash. As you get older and closer to needing your money, you hold more bonds to smooth the ride.
- Nothing complicated. If you do not understand it, do not buy it. No structured products, no leveraged funds, no individual stocks unless you genuinely know what you are doing. Complexity usually benefits the person selling, not the person buying.
What about cash?
Cash has exactly one legitimate role in a personal financial plan: your emergency fund. Three to six months of your living expenses, sitting in a money market account or instant-access savings, ready to use if you lose your job or face an unexpected expense. That cash serves a purpose. It is not invested and it should not be. Everything else — money you will not need for at least three years — should be working for you in the market.
| What it is | Where it should go |
|---|---|
| Money you will spend this month | Current account. Not investable. |
| Emergency fund (3–6 months expenses) | Savings account or money market. Not invested. |
| Money you will need in 1–3 years | Short-term deposits or bonds. Capital preserved. |
| Everything else | Invested. In a low-cost world equity fund. Immediately. |
The return assumption of 7.5% per year is based on the long-run historical return of diversified world equity indices including reinvested dividends, adjusted slightly downward for conservatism. It is not guaranteed. Future returns may differ. This page is for general information only and does not constitute investment advice.