9 Tips for saving and investing
Most of us are aware that investing your money means ending up with more than what your piggy bank can store. But it can be surprising to see the difference between saving and putting your money to work – by which we mean investing even in low-risk, low-return products. Let us dive into a trove of financial possibilities—you can be a savvy investor channeling your money into investments that will reap results beyond what savings have done for you. Here are nine tips to answer your “when do I start?” and “how much do I need to invest?” (and everything in between) questions.
Women cannot “afford” not to invest
Women in particular – if you consider wage inequality, a tendency to work part-time, and their longer life expectancy – can’t really “afford” not to invest. It’s a revolution waiting to happen.
Let us paint a vivid picture:
If you put 10,000 Francs into a savings account for 20 years, at an interest rate of 0.25%, you will end up with 10,512 Francs. But if you invest the same amount at, for example, 4.0%, you will accumulate 21,911 Francs over the same period. You can use this saving calculator (supplied by moneyland.ch) to calculate the results for all your possible plans, even monthly deposits. (Don’t forget to deduct the costs of the investment product from your results!)
Saving vs. investing
Saving is when you simply put money aside for a certain period. You might have a specific purpose in mind, like a trip or a big purchase. Simply put, investing is when you temporarily turn your money into stocks, bonds, gold, or real estate, with the aim of increasing the amount you own over the long term. Deciding which is the better approach depends on your personal goals and opportunities. It also depends on how much you are willing to take risks – without at least some risk, you can’t get a return.
A representative study of 1,500 people in Switzerland, conducted by Migros Bank, showed that 92% of young people (aged 18 to 29) regularly put money aside, along with 93% of 30 to 55-year-olds. The same young people said they didn’t invest their money, as they weren’t familiar with alternatives to savings accounts (52%) and they believed they had too few assets (48%).
When is the right time to start investing?
Is it still worth starting at 40 or 50, or is it already too late?
It always pays to make your money work harder. Compound interest means that the earlier you start, the better. There is no quota age but it can still be worthwhile investing at a younger age.
An investing tip for parents
It’s always a great idea to invest any money your children might have – as we say in the trade, children have a very long “investment horizon.” Despite special conditions and little or no fees, with interest rates being so low at the moment, there’s little point relying on a children’s savings account.
How much should I invest?
This amount depends on your income, your outgoings and personal settings, your goals – but also your willingness to take risks. One way to work out your investment target is to start with your current budget, then roughly define your goals: what do you want to have in one year? three years? five or more years? Then see approximately how much money you will need to invest to achieve that.
You could invest any amount that you won’t need for the next five years or you could make regular monthly investments in a fund savings plan or ETF savings plan, instead a basic savings account. This is also possible with small amounts. Be mindful to check fees for these funds before you get started, especially with ETFs. Depending on which online broker or bank is administering them, there may be additional costs to make a deposit, transaction (brokerage) costs for buying and selling , and even additional taxes to pay. It’s good to compare a few providers to see what’s available.
To move all your remaining questions out of the way, we provide you with nine simple tips for investing, that help you to get started.
Nine tips for investing
Tip 01: Plan for the long term
Make your investment horizon (the amount of time you’ll keep your money invested) at least five years, ten or more would be even better. Take time to think about what features are important to you: would you prefer low risk investments, flexibility, or high yield?
Tip 02: Determine your risk profile
Are you conservative, balanced or willing to take risks? This is mostly down to your personal risk appetite and risk capacity. Once you know your risk profile, this will determine the composition of your portfolio, including how much should be equity investment.
Tip 03: Be broadly diversified
Spread your investments across a range of asset classes, markets and sectors. This reduces risk and increases the chance of returns.
Tip 04: Calculate the real return and weigh it against risk
Ask yourself what the return on your investment will be after you deduct costs, inflation and taxes. How much risk do you have to take on to get to that figure?
Tip 05: Stay disciplined
Don’t panic and avoid herd behavior. Looking at the past shows that equity markets (e.g. the SMI) always go up over long periods of time (see chart).
Tip 06: Don’t wait for the right moment
There is no right moment!
Tip 07: Single premium? Or staggered?
There are different opinions here — those who stagger their investments benefit from the average cost effect, but some studies say that single premiums could be better.
Tip 08: Understand what you’re investing in
Find out what the financial product is. Read the small print! And if you’re buying shares, look into the business sector you are entering.
Tip 09: If possible, leave your dividends in your portfolio
This will give you an even greater amount of compound interest.
Questions that go beyond our tips for investing
Women often ask us about savings and investments. Common questions are: whether one should invest if they have debt, or how much cash reserve is really useful in an emergency. The answer is that the exact figures are always very personal, but determining a few facts about your own finances means you can think realistically, which will help you to determine your own strategy.
Finally, generalized tips on investing can only take you this far. If you are ready to dive deeper or would like the insight of an expert on your personal situation, there is always the option of talking to a wealth manager. For example, Alpian offers a free, non-binding consultation with a wealth manager that can help you with all your questions – even if you don’t have an Alpian account.
