Save or invest? How to grow your money while working and living in the Czech Republic

The experts at Saxo Bank offer smart strategies for expats looking to build a retirement fund or start their investment journey.

Diana Bocco

Written by Diana Bocco Published on 01.10.2021 16:20:00 (updated on 30.03.2022) Reading time: 6 minutes

Save or invest? As an expat in Prague, it can sometimes be tricky to figure out how to manage your finances. Maybe you don’t understand the local market and don’t know where to start. Or maybe you’re worried about the effect of different currencies or tax implications while investing abroad.

No matter how much you have to invest, picking the right option to manage your hard-earned savings should be the first step if you’re unclear about the best course of action. There are plenty of investment opportunities available for expats, even if you’re a first-timer just looking to learn more about real-life wealth-building strategies.

We talked to financial experts from Saxo Bank – a fully licensed and regulated Danish bank specializing in online trading and investments – to help you design an investment strategy that will work for you. With a dedicated Prague office staffed with English-speaking investment managers and a wide variety of products and services tailored to expats, Saxo Bank is hoping to help foreigners living in Prague make the most of their money.

Why investing as an expat is a good idea

The current inflation rate in the Czech Republic is around 3%, while the interest on saving accounts is below 1%. This means if you’re keeping your money in a savings account, it will just continue to lose value over time. To offset this loss, you need to figure out a way to get that money working for you through the right investment tools.

Another reason to invest as an expat is retirement. Pension systems around the world are different and sometimes not so developed – which is the case in the Czech Republic. Without your own retirement strategy, you might end up with a retirement pension from the government that just covers basic needs.

How to invest: what options are available for expats in the CZ

When you start investing, you have basically two options: let professionals manage your investments or build your own portfolio. The first option is good for people who don’t want to follow the market and learn how to invest and would rather find somebody to make those choices for them.

Your other option is to try this on your own, in which case you’ll need to study investment opportunities, understand their risk/reward levels and figure out your investment goals.

“Nowadays the trend is that clients start investing on their own – and there are many reasons why this is happening,” according to Tomáš Daňhel, Senior Relationship Manager at Saxo Bank's Prague office. “When you are at the beginning of your investment or trading journey, it is only up to you how you will set the tone of your portfolio."

Whether you want to invest because of inflation, retirement or other financial goals, starting early is key. Investing is not something you do for short-term wealth and experts instead recommend investing for at least five years, so proper planning is necessary.

Finding an expat-friendly option to invest locally

Due to fintech and digitalization, you can now invest from anywhere in the world, no matter where you are at the moment, explains Daňhel.

Still, finding a local broker who meets your expectations and requirements is very important as well, Daňhel says.

In the Czech Republic, you can invest through traditional banks, financial advisors or brokers. Local Czech banks usually focus on mutual funds, while brokers serve as a marketplace for direct orders like stocks, ETFs and other investment instruments – meaning you have to trade on your own. Financial advisors often focus on your whole financial situation, rather than just investing.

On the other hand, Saxo Bank is an investment bank with a VIP service, which offers full support to investors and traders, providing a background for understanding investment possibilities and helping you figure out suitable portfolio allocations. VIP clients can also contact the SaxoStrats team at any time for support before making any big financial decisions. 

Mistakes to avoid when investing

Not focusing on a long-term strategy

Investing requires patience – even if the market sees a loss, it will eventually go up again. “Too often I see clients close their entire portfolios when the going gets tough in markets,” says Kieran Phyo, Head of Asset Management Product at Saxo Bank. “This is the opposite of risk management and can result in people losing their money and having an unfavorable investment experience."

One of my main concerns is to help clients understand what to expect from investing, so that the bad periods can be endured in anticipation of the good times.

Not understanding your risk tolerance

Make sure your starting point for any investment is deciding your risk preferences and prioritize controlling the risk in your portfolio. “Many novice investors are unaware of the risk they are exposed to when self-building their portfolio,” says Phyo. “They can't say if their portfolio is low risk or high risk, or even explain what low or high risk means to them.” 

Putting all your eggs in one basket

To minimize risk and increase your financial potential, you need a diversified portfolio. This means buying a mix of assets and equities. Each asset class has a different risk/reward ratio and is a base block for building a diversified portfolio. 

With stocks you invest in real companies, which sell a product or service - think Amazon, Tesla or Apple. On the other hand, exchange-traded funds (ETFs) are investment funds that combine a number of stocks from a similar industry, sector, region or asset class. If you want to build a long-term widely diversified portfolio, ETFs might be very good building blocks.

Bonds are for more conservative investors, but can cover inflation and risk is also lower. This isn't always the case with bonds from companies in the Czech Republic, though, where the yield is higher but so is the risk. This is where the support of a knowledgeable advisor makes a difference.

It’s also possible to invest in commodities such as gold and silver, either through ETFs or directly in companies focusing on mining and processing.    

"Studies have shown that the allocation into different asset classes is 90% of the return," according to Steen Jakobsen, Chief Investment Officer at Saxo Bank. "It does not really matter whether you are investing in US, German or other stock indexes over time, but how much of your total money is allocated does! Stocks provide higher returns over time also because it’s easier to sell/talk about them, but be extremely careful when it comes to price, value and expected return profile."

"Stocks have yielded roughly 7% pro annum since WW2 but 10% in the last decade, so, if anything, keep investing but be diversified and use price averaging to buy and sell in the market."

Thinking you need a lot of money to start investing

In the case of Saxo Bank, the minimum initial deposit for a Classic account tier is $2,000 USD or the equivalent in other currencies. With this amount, you can easily build your first diversified portfolio using Stocks, ETFs, and other asset classes.

If you’re interested in their hands-free managed portfolios (SaxoSelect), you will need at least 10,000 USD or EUR to start. In exchange, you will get a professionally managed investment portfolio, curated by some of the best names in the industry.  

"This is an easy solution to consider if you have little or no experience, or no time, as you won’t need to commit time and effort into analyzing the market and making decisions on your own," explains Laurentiu Danut Nedelcu, Country Head of Digital Sales at Saxo Bank's Prague office. "The capital is invested with insights from the world’s largest asset managers like Nasdaq, Blackrock or Morningstar, directly through our Saxo platform.

For those interested in self-education and staying up to date, we also offer an educational section directly on the platform, together with top-notch analysis from our SaxoStrats analytical team. VIP clients can directly speak with them anytime and discuss the current situation or their view on the market."

This article was written in cooperation with Saxo Bank. Read more about our partner content policies here.

Disclaimer: Trading financial instruments carries risks. Always ensure that you understand these risks before trading.

Would you like us to write about your business? Find out more