5. How can you accumulate more money?

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Once in a while a friend, relative or Tuleva member asks me for tips on how to start investing.

I tell them what I have already described in the previous chapters: it is wise to start with the second and third pension pillars. I don’t know a more logical tool for saving money – the tax incentive is just such a major advantage.

If the goal is to collect more money, even an advanced investor should probably spend as little time investing as possible.

My advice is typically received with an awkward pause. Finally, the friend admits: “Um, I was thinking of something more aggressive. A bigger return or something …”

Okay. You may feel that the pension pillars are too boring. That reaching one million euros by your 67th birthday is too modest a goal. That saving in a passive index fund is perhaps the best choice for ordinary people, but you would probably be able to make smarter choices.

Why not!? Sure, go for a bigger return! Here’s a tip.

Even professionals would earn more in an index fund

You may get a different impression reading investment handbooks, but if your goal is to collect more money, even an advanced investor should spend as little time investing as possible. Why?

Because passive investing has two good qualities. First, if you choose a low-cost broad-based index fund, you can be quite sure that the return on your assets will never lag far behind global economic growth.

Second, doing so will save you a lot of time. If you don’t spend energy looking for investment opportunities, you can focus on what interests you and where your real competitive advantage is.

Ask yourself: what is the shortest path to higher income?

One way is to look for better returns on investments.

The trouble is that almost no one can consistently outsmart the markets. The vast majority of investors who try to do so earn less than average after deducting the trading costs. I’m not talking about beginners or amateurs here. This applies to professionals who have the best analysis tools and the latest technology at their disposal. To consistently beat the market average, you need to be more committed and smarter than these professionals.

Use your energy where you have an advantage

That’s why analysing markets, reading annual reports, looking for patterns in databases, and buying and selling stocks is probably not the most cost-effective way to spend time.

You will be smarter if you devote time to the area in which you are already strong. Develop your skills, make yourself indispensable, ask for a raise, start a business. Could you look for a small extra job right now, today?

Let me give you a banal example.

Suppose Laura devotes a lot of free time to researching investment opportunities over the next 10 years. Suppose she achieves twice the return on her investments compared to our index fund example.

This is unlikely, as only a few are so successful. But it’s not impossible. Then Laura would collect 17,000 euros more in ten years than originally planned.

Now suppose Laura focuses on her profession and finds some extra work, which pays her 400 euros more every month. Laura simply saves these 400 euros every month in a term deposit in a bank. (I checked that, for example, IN Bank currently offers 2% interest per annum on a 3-year deposit.)

Doing so, Laura would save an extra 52,000 euros – about three times more!

I have a good friend, Kristo Käärmann, co-founder of Transferwise. I’ve noticed in Äripäev’s rankings that he is the richest person in Estonia. Kristo’s wealth has come from his work, not from clever investments. Even today, he does not spend time trading stocks or real estate but is constantly working on being even better in what he does. Kristo has his pension pillar in Tuleva.

Start now, grow your income, save consistently

You assess where your big advantage is. You could save more money if the return on your investment were better than the market average. But you will probably collect much more by developing your true talents and being able to set aside more thanks to better income.

So, this is the formula for collecting money in a way that does not take time, gives a tax gain and is likely to bring a good return:

  • Start as soon as possible. If you haven’t done it yet, start using the third pension pillar in addition to the second. Set up a standing order so that 15% of your monthly salary goes to the third pillar. And of course, make sure you save both your second and third pillar assets in a low-cost index fund.
  • Look for ways to grow your income doing what really interests you. Do not spend your additional income, but place it in a low-cost index fund or even on a term deposit.
  • If investing isn’t your hobby, don’t waste your time on it. But if you enjoy investing, then why not do it. Just keep in mind that hobbies are usually costly.


Chapters of the article series Laura’s Journey to Wealth:

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