If you live in Finland, this new investment account can make you richer

Invest and retire early in Finland
Reading time: 3 minutes

According to the famous scientist, Albert Einstein: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it”. It looks like the Finnish Parliament has finally understood this, which is good.

In March 2019, Finland’s Parliament made the final decision to approve the new laws that enable Finnish individuals to create their own individual stock savings account up to 50,000 Euros. Finns can open their account on 1.1.2020 and afterwards. 

What are the benefits of the individual stock savings account? 

There are some really favourable benefits for individual investors:

  • Individuals can transfer up to 50K for their individual stock savings account, but there’s no limit of how much the investments can grow inside the account. The earlier in life an individual (or a parent) starts using this account, the more benefits it usually provides.  It really matters how much taxes have to be paid for capital gains and dividends:
  • Let’s take an example: if some parents are wealthy enough to have the money to invest 50,000 Euros when their child is 10 years old (one-time investment in this example), that 50,000 Euros would grow to be 503,132 Euros after 30 years when he/she would be 40 years old. The average stock market return has been somewhere between 710 % depending on how it is measured. I used an 8% annual return in this example. That 503,132 Euros would be worth of around 350,000 after taxes and considering the yearly inflation (2% in this example), that 350,000 would actually be worth of 193,000 Euros on the day when it was first invested (when the kid was 10 years old). Still not bad for an initial 50K investment. 

Who is this not for ? 

The individual stock savings account is good for those who like buying single stocks and keeping them long-term. The account is not suitable for individuals who already have lots of stocks or big sums to invest, because the transfer limit is 50,000 Euros and previously purchased stocks cannot be transferred to the account. Also, it is not a good idea to use the account to buy stocks from other countries, because it’s not tax-efficient.

Most beginner investors start their investment journey by investing in ETFs (Exchange-Traded Funds), because these are good for diversification and usually cost-friendly. However, the new stock savings account is not applicable for ETFs, because it only allows individuals to buy single stocks.

Compared to other Nordic countries, Finns have been very careful with their money in the past when it comes to investing

We Finns are definitely too careful with our money. According to a Danske Bank’s survey, almost 80% of Finns think that investing in stocks is very risky. Only 50 % of Swedes think that way. From the graph below, we can see there is a huge difference when it comes to the ownership of stocks and mutual funds between Swedes and Finns. 

In 2018, the average Swede had 133, 402 Euros invested while the average Finn only had 53,712 Euros invested. Finns have traditionally mainly bought their home and kept the rest of their money in their bank account, avoiding the stock market.

I hope that Finns will be encouraged to invest more and become wealthier with this individual stock savings account. 

Joonas Saloranta covers Northern Europe investing, macroeconomics and more at the Financial Nordic blog.

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