Etf Savings Plan – Facts That Equity Fund Savers Are Not Yet Familiar With

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The ETF savings plan has become a mass product in recent years. But it is not clear to many investors what is important when it comes to equity fund savings. Fairvalue highlights facts that savers are not yet familiar with – and shows how they can get more out of an ETF savings plan.

Fairvalue analyzed

  • whether an increase in savings rates is worthwhile during a stock market crash.
  • what influence the execution costs of an ETF savings plan have on the final value.
  • which is why a cheap ETF is more important than a cheap broker.
  • why ETF savings plan calculators calculate incorrectly.
  • the consequences of inflation for an ETF savings plan.

An ETF savings plan based on an international stock index is probably the best financial product for building up a fortune in the long term with small savings. The concept: Investors regularly buy shares in an exchange-traded index fund (ETF) through their custodian bank for a certain amount. In this way, you can invest in hundreds of international corporations without having to have cash. The savings plan installments are paid from the current income.

For whom an ETF savings plan is unsuitable

However, savings plans are unsuitable for investors who already have capital that they want to invest. An ETF savings plan is not an investment strategy. If you have money, you should immediately invest it in a diversified ETF portfolio that matches your personal risk appetite . This is usually much more lucrative than a savings plan.

In most cases, it is also disadvantageous to start at installments over 12 or 24 months, as various studies show. However, supposed financial experts keep recommending such a strategy. Many investors follow this questionable advice and spread it with conviction in stock forums on the Internet. Read what speaks against a salami tactic in our article on the cost-average effect .

Why ETFs and not actively managed funds?

Equity ETFs are very inexpensive funds, the shares of which are continuously traded on the stock exchange like stocks. The ETFs, which are suitable for fund savings, copy the performance of international stock indices such as the MSCI World. International equity ETFs usually do better than actively managed funds . The latter attempt to outperform the average performance on the stock market by carefully selecting stocks and buying and selling stocks at supposedly favorable times. But only very few fund managers manage to do this, as numerous studies have shown.

Advantages of ETF savings plans

ETF savings plans are largely transparent, very flexible and cost little. Investors can increase or decrease their savings rates, pay in larger one-off amounts and sell all shares at the market price at any time without incurring any disadvantages such as with subsidized Riester savings contracts. However, savings plans on equity ETFs are also riskier. There are no guarantees. The prices of stocks fluctuate. Stock market crashes also occur time and again . Nevertheless, measured by the MSCI World, the global stock market has returned an average of around 7 percent over the past 50 years.

ETF savings plan: execution costs are not particularly significant

ETF savings plans are offered by banks and online brokers. Customers regularly pay in their savings. For this money, the bank buys shares in the selected ETF on a specified day of the month and books them in the customer’s securities account. The providers can of course pay for this service. Many ETF savings plans are still free. As a rule, the ETF providers then assume the execution costs. The free offer is intended to ensure a higher flow of capital into your funds.

But is it really worth giving preference to a bank just because it is currently offering the desired ETF savings plan free of charge? We analyzed the effect of processing costs on the ultimate valuation of investment plans to address this issue. The lower income, for transaction costs in different amounts, is made up of the amount deducted for execution and the lower profit resulting from the reduction in the savings rate.

Why you can forget about the ETF savings plan calculator

Banks, fund companies and comparison websites offer ETF savings plan calculators on the Internet. These simple programs are intended to predict the final value to which a given savings rate will lead after the selected investment period has expired. Or how much a saver has to invest monthly in order to reach a specified final amount.

The results of such savings plan calculators are misleading for several reasons . On the one hand, the users have to indicate the future annual market return with which the capital will earn interest. However, this key figure is unknown for equity investments and varies considerably from investment period to investment period. This problem cannot be alleviated by having savers test multiple scenarios with different rates of return. Even this approach does not provide a reasonably realistic picture of the return an ETF savings plan will generate in the future.

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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