SAVINGS PLAN
Have you ever heard of the effect of compound interest? Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who does not understand it, pays it. The concept behind compound interest is to make more money with money. Basically, by reinvesting the interest (or income) from an investment, you get more interest or income. The longer income is invested and reinvested according to this principle, the greater the effect of compound interest will be. This is what is meant by the sayings “making money work for you” or “money brings money”.
What are my advantages?
Let me give you an example:
A 30-year-old who saves 200 a month for 35 years will, at the age of 65, have 84,000. A 30-year-old who invests 200 per month for 35 years at 4% will have pension assets of around CHF 180,000 at the age of 65 – almost 100,000 more. By starting the savings plan at 25, the investor would have almost 70,000 more.
What can be deduced from this? That time is the most important factor. It sounds banal, but it is not.
And why is it important to me?
Did you know that savings accounts have never yielded as little as they do now?
Low interest rates have practically wiped out the returns on risk-free investments such as savings accounts or Swiss government bonds. Nowadays, anyone who wants to make their money pay off despite negative interest rates is obliged to invest.
I’ll tell you something else: money left in the bank account loses value over time, it doesn’t stay the same. Unfortunately, saving is not enough. Save, learn and start investing is the best strategy.
How and where to invest?
“An investment in knowledge always pays the maximum interest”. In my opinion, knowledge is the most profitable investment. Before you start, learn and contact a professional.
We have stocks, bonds, funds, Forex, etc … and then there are ETFs: my favorites. =)
What are ETFs?
An ETF is an index fund that replicates an index, for example the SMI (the main index of the Swiss stock exchange) and is traded like a stock. ETFs combine the advantages of a fund and shares in a single financial instrument. They make it possible to invest economically in the entire market using a single instrument, and also to invest in various asset classes, not just equities. Thanks to this variety, ETFs are the perfect solution for private investments. ETFs simply follow a market index step by step, and can be traded at any time on a stock exchange, just as if they were shares.
What are the advantages of ETFs?
They are cheap and transparent, but also widely diversified, flexible and liquid.
Tip
There are a number of factors that heavily influence the outcome of investing using compound interest.
Here is some advice: start as early as possible and determine the duration of your investment. Optimise fees first and then the various instruments. Lower your commissions (pay attention to costs and compare different products).
And finally, diversify! Never put all your eggs in one basket.
Conclusion
With this article, I hope I have managed to give you a new perspective on how to save and, at the same time, to invest your money.
If you have any further questions, please feel free to contact me.
Sincerely,
DG