For years I had money sitting in a bank account. Not much, so I didn't worry. It was in a "savings account" earning 1% annually, and I thought that was enough.
Then I started accumulating more money. That's when something clicked.
The moment I understood inflation
It wasn't from a book or a class. It was observing reality.
I remember as a kid, a full grocery bag cost €100. Years later, the same groceries cost significantly more. Much more.
Or look at a Volkswagen Golf. 15 years ago it sold for €20,000. Today, a new Golf costs €30,000.
That's inflation. And it affects EVERYTHING.
Then I understood: if I leave my money sitting in a bank for 15 years, I'll lose purchasing power.
Not because someone stole it. But because things will cost more and my money will be worth less.
The problem: idle money is money slowly dying
Most people think "keeping money in the bank is safe." Technically yes. You don't lose it. But it disappears slowly.
If you earn €30,000 in a year and put it in a bank earning 0.5% annually (which is normal today), after 30 years that money is still there. But you can't buy half of what you could with it 30 years ago.
That's losing money. Without anyone taking it from you.
Average inflation in Spain is around 2-3% annually (varies by year). A bank gives you 0.5-1%. Result: you lose 1.5-2.5% of purchasing power every year.
Do the math over 30 years. It's brutal.
The options I considered
When I realized this, I researched alternatives.
Option 1: Fixed-rate deposits
Deposits give you a guaranteed annual rate. In recent years, between 2-3% (depends on the bank and timing).
The problem: after taxes, you barely cover inflation. If inflation is 2.5% and your deposit is 2.5%, after taxes on interest you're at zero, or even negative.
It's better than a normal bank, but it's not a solution. It's a temporary patch.
Option 2: Index funds
I researched index funds that track indices like the S&P 500 or MSCI World. Without thinking about "stock picking" or choosing individual stocks. Just: the global market, diversified.
The historical return of the market is ~10% annually long-term. Sometimes it's higher, sometimes lower. But over 20-30 years, that average holds.
Right now I'm getting ~14% annually. Some years it'll be less, others more. But it beats inflation with margin.
The key point nobody understands
Here's what matters: I'm not investing to get rich.
If that were my goal, I'd be obsessed with 30% returns, hunting for rare stocks, timing perfectly. I'd go crazy.
No. My goal is simpler: beat inflation and earn something extra.
That is: if inflation is 2.5%, I want to earn 5-10%. Not 50%.
That's feasible. That's realistic. That's what an index fund does.
Why it matters, even with little money
"But I only have €100 a month to invest."
Exactly. Even with that, it matters.
€100 in a bank: after 30 years, you lose purchasing power. Your "€100 initial + interest" probably won't buy half of what it buys today.
€100 in an index fund: after 30 years, that money compounds, grows, beats inflation. It won't make you rich. But at least you don't lose.
It's the difference between "slowly losing" and "slowly gaining."
The correct mindset
This is where many fail: they think "if I don't become a millionaire, what's the point?"
Wrong approach.
The real question is: "Do I want my money to lose purchasing power every year, or do I prefer it to grow?"
If you choose the second, invest. Even if it's little. Even if it's €50 a month. Even if it won't make you rich.
True wealth isn't "being a millionaire at 40." It's "having the same purchasing power at 70 as I have at 40. Or more."
Deposit or index fund?
Depends on your risk tolerance:
- Deposit (2-3% APY): safe, but barely covers inflation after taxes. Good if you're scared.
- Index fund (8-12% historical): more volatility, but beats inflation with margin. Good if you have 20+ years.
If you have 20-30 years ahead, index fund. Even with "dips," time averages it out.
If you have 5 years, maybe a deposit. Not enough time to recover from volatility.
The conclusion that matters
You don't need to be an "investor" or understand complex finance. You just need to acknowledge one thing:
Idle money loses value. It's automatic. It's guaranteed.
Once you recognize that, you have only one option: invest in something that beats inflation.
It doesn't need to be ambitious. A simple index fund, automated every month, forgotten for 30 years. That's enough.
Your money won't make you rich. But at least, your money will still be money in 30 years. It won't have lost its purchasing power.
And honestly, that's what matters.