Finance

How to invest your money conveniently and cheaply

To regularly invest money in an index fund or ETF, you can use an ETF savings plan. But what is that anyway? What are the advantages of an ETF savings plan? We clarify the most important questions.

If you don’t want to invest a large amount of money all at once and want to achieve higher returns than a savings account, it is a good idea to regularly invest smaller amounts using a savings plan. There is also such a savings instrument for so-called ETFs. These are special stock funds, i.e. stock baskets in which a computer algorithm replicates a stock index like the Dax.

With an ETF savings plan, the value of your invested money develops parallel to the simulated stock index. The highlight: your risk is widely spread. ETFs are also very cheap – especially when compared to actively managed funds, where you pay high fees to a manager who monitors the stocks in the fund. In addition, ETFs offer you a high return, called yield – especially in comparison to the classic savings book.

But what do you have to consider with ETF savings plans? How much money can such an investment bring you? You can find out all this and more in our overview with the most important information:

What is an ETF savings plan anyway?

With an ETF savings plan, you lay over a longer period of time regularly smaller sums of money to – in so-called ETFs (“Exchange Traded Funds”), also called index funds. So you don’t have to invest a large amount in one fell swoop: with some direct banks or online brokers on the Internet, you can already use one Savings rate starting from 25 euros per month.

Savings plans with ETFs are a very attractive form of investment, especially for beginners. Because ETFs are inexpensive and comparatively low risk. Explanation: In the case of an index fund, a computer algorithm forms a stock index according to – for example the Dax or the MSCI All Country World Index. So ETFs contain a large number of different stocks.

The highlight for you as an investor: you spread your money very broadly without having to know a lot about individual stocks. This will keep your risk of making losses low. For example, in the case of an ETF that tracks the MSCI All Countries Index, you invest in more than 2,700 of the largest listed companies from many different industries around the world. Since ETFs do not have a fund manager, they are cheaper than, even in the case of a savings plan conventional equity funds.

Specifically, an ETF savings plan works like this: You pay 25 euros to a direct bank on the Internet. The direct bank then buys certain securities for this money, specifically: shares in an ETF that you have selected beforehand. If the index that “your” ETF tracks increases in value, you can benefit from this increase in value – if you sell your shares later, you will make a profit.

In times of low interest rates, ETF savings plans are the best perfect combination of saving and investing: Since you deposit money every month anew, for example 25 euros, your base of capital grows, and you also benefit from the share income, which is usually significantly higher than the interest on the savings book.

ETF savings plans are also one very flexible form of investment. Because with most ETF savings plans, it is possible to adjust your savings rate. That means: You can suspend payments – or deposit more than the originally planned rate.

The time of entry into the savings plan is irrelevant

Another advantage of an ETF savings plan: you don’t have to worry about the right time to start. Since you do not have to pay a large amount once, but regularly make many small sums in the Securities investing, it’s not too bad if you start with falling prices. In this case, you get more fund shares for your money – if the prices rise again later, you skim the profits. However, the exit time is very important (see below).

Basically: Only invest money that you will not need for the next 15 or 20 years. Because in the short term, a stock price may slide into the negative. If you then need your invested money and have to sell your ETF shares, you may have made losses.

In the long term, however, numerous studies show that short-term price fluctuations compensate for each other – so that you generate profits and benefit from the so-called compound interest effect: Because your invested money increases all the more if income that was previously generated is added.

What are the costs associated with an ETF savings plan?

There are different costs for a savings plan. You should pay attention to the following points:

  • Deposit costs: Since you first have to open a depotBefore you can set up a savings plan, you should be aware of these fees. In contrast to branch banks, many online providers and direct banks do not incur any costs for a deposit. With conventional banks and savings banks, a deposit can cost more than 20 euros a year.
  • Execution costs: When buying ETFs, there are often so-called order fees. These costs arise when a direct bank makes a specific purchase for you – every time you pay money to your ETF investment as part of the savings plan. This can either be fixed amounts, for example 1.50 euros per savings plan execution – or a percentage of the amount invested, for example 0.2 percent. At 25 euros that would be five cents a month.
  • Administration fees: These are the costs that a fund company charges for offering a fund. These costs are often summarized in the total expense ratio (“TER” for short). In contrast to active funds, ETFs – and thus also savings plans in ETFs – cost much less, since no manager has to be paid to pay the Share trading controls.

Our tip: Sometimes providers also advertise with ETF savings plans. For these, the costs are lower for a certain period, for example six months. But be careful: these are often only lure offers. Once the period has expired, you pay a significantly higher fee.

What is the risk of an ETF savings plan?

The risk of losing your money is with a savings plan in an ETF relatively low. Because you spread your risk very broadly. One also speaks of a high degree of diversification – a decisive advantage of an ETF savings plan. This is different from a savings plan in individual shares.

The reason: A computer algorithm replicates a stock index like the Dax – so you invest in all parts of the companies that an index contains. In addition to the Dax, there are many other stock indices. The MSCI World Index For example, it tracks the performance of the 1,600 largest corporate shares from 23 industrialized countries. ETFs that track this index are considered relatively safe.

The MSCI All Country World index, which contains shares in more than 2,700 of the world’s largest listed companies, offers an even broader spread. In this way, it covers virtually the entire world economy, including the emerging markets. ETFs that track this index are also considered low risk. After all, it is unlikely that all of the stock prices shown will fall sharply at the same time.

Another advantage: With an ETF savings plan, you don’t have to worry about when the ideal one Time of entry is on the stock market. With savings plans you divide up your investment amount and invest piece by piece – so you ultimately have many small entry points.

This reduces your risk of entering the stock market with the entire, larger sum if the price is too high. A further plus point can be seen in times when prices fall: Then you can buy shares of an index fund with an ETF savings plan at particularly low prices. So you get more shares for your money.

Even in crash times when all courses fall, you can always get in with an ETF savings plan. Because in the long run the price fluctuations balance each other out.

Note the time of the exit

But Attention: In contrast to the time of entry, it is important to pay attention to when you exit the investment – i.e. to sell your securities. The reason: the price of an ETF can be at a low level. Then you would sell your shares comparatively cheaply – and possibly make less profit or even lose money.

So if you can still wait, wait. Therefore, the following also applies: Only invest money that you do not urgently need (see above).

Should I invest using an ETF or fund savings plan?

It depends on your preferences. As a newcomer to the stock exchange, you should invest in an ETF savings plan rather than in Savings plans with classic stocks or Funds. There are several reasons for this:

  • Costs: Because ETFs computers have one Stock index replica, they are cheaper than conventional equity or mixed funds. After all, there is no need to pay a manager to monitor the composition of the fund. For ETFs, the total expense ratio (“TER”), which includes all important costs, is significantly lower than about equity funds. This also applies to ETF savings plans.
  • Yields: In the long term, ETFs achieve a return that is at least as high, and often even higher, than classic actively managed ones Equity funds. This is because even experts rarely succeed in making exact forecasts of future market developments – in order to generate better returns than the broad mass of investors. A savings plan with ETFs that cover entire markets is therefore often more profitable.
  • Transparency: Another advantage of ETF savings plans is the greater transparency of ETFs compared to conventional mixed or equity funds. As an ETF tracks a certain stock index, you as an investor always know which company shares the Funds contains. Actively managed funds are often less transparent, and investors often only find out which shares the fund is made up of with a time delay or on a certain key date.

ETF savings plan – is the MSCI World enough?

For beginners: An ETF savings plan on the MSCI World is enough for now. The MSCI World Index contains the stocks of the 1,600 largest companies from 23 industrialized countries. ETFs that track this index are therefore considered to be relatively low-risk. Another advantage: The MSCI World is considered a “classic”, which means that most direct banks and online brokers should offer MSCI World ETFs.

However, you can spread your risk even more widely. It works with an investment in an ETF that is even more comprehensive MSCI All Country World reproduces. This index contains the company shares of more than 2,700 of the largest listed companies worldwide from almost 50 countries. In this way, it covers virtually the entire world economy, including the emerging markets.

Advanced users can also invest in ETFs through several savings plans. In this way, you can further minimize your risk – or specifically increase it if you are looking for potentially larger returns.

How do I compare ETF savings plans?

You can find various comparison portals on the Internet where you can compare the terms of the savings plans. Several factors are decisive for the comparison:

  • Costs: Not only the deposit costs, but also administration fees and order fees are important (see above). You should pay attention to this when making a comparison.
  • Selection: The different direct banks have different offerings. So if you want to choose from many different ETFs, you should pay attention. But it does apply that more choice does not mean that better ETFs are offered at the same time. It is indispensable for beginners that the direct bank puts a savings plan on the MSCI World or the MSCI All Country World (see above).
  • ETF brands: It is possible that you are only in certain ETFs Investment companies want to invest, for example Blackrock, Fidelity or DWS. Then you should pay attention to the names of the ETFs.

This table provides information about the fund companies, their ETF brands and the countries in which the fund companies are headquartered:

ETF brandInvestment company
or bank
countries
iSharesBlackRockUnited States
XtrackersDWS Group
(Deutsche Bank)
Germany
LyxorLyxor Asset Management
(Société Générale)
France
ComstageLyxor Asset Management
(Société Générale)
France
HSBCHSBCGreat Britain
FidelityFidelity InvestmentsUnited States
AmundiAmundi
(Société Générale and
Crédit Agricole)
France
Franklin / Franklin LibertyFranklin Templeton
Investments

United States

Well-known ETFs are, for example, the “iShares Core MSCI World UCITS USD”, the “Xtrackers MSCI World Index UCITS” or the “Lyxor Core MSCI World (DR) UCITS”. Accordingly, “iShares”, “Xtrackers” and “Lyxor” are the ETF brands. All three ETFs track the MSCI World Index, as can also be seen from the name. The abbreviation “UCITS“stands for” Undertakings for Collective Investments in Transferable Securities “and means that the ETF complies with special European guidelines – and that you enjoy special investor protection when investing.

How do I start an ETF savings plan?

Creating an ETF savings plan is child’s play. Follow these instructions in five steps:

  1. Select direct bank: First of all, you need to consider which direct bank you want to invest your ETF savings plan with.
  2. Open depot: Before you can create a savings plan, you need a so-called securities account and a clearing account. In the custody account you will find an overview of your investments – and with the clearing account, which is linked to your conventional current account, you can easily make payments from the savings plan. In order to create the deposit and account, you have to fill out an online form and legitimize yourself (see below).
  3. Identify by post identification: Banks are required by law to identify you so fraud or money laundering is prevented – and no one misuses your information. In the process, you are either identified by a Deutsche Post employee in a branch or directly via video chat.
  4. Search for ETF: In the search mask of the portfolio you can search for an ETF that you have selected beforehand. The easiest way to do this is with the security identification number (WKN) or the international identification number (ISIN) of the security. Each security bears these numbers so that investors cannot confuse it and find it easily.
  5. Set savings rate and saving interval: Now you can select your savings rate and the savings interval (for example, 100 euros per month). You can usually adjust the rate and interval later. The selected amount will now be debited from your clearing account on a regular basis. For you it means: wait – until your money has increased.

Can I also take out an ETF savings plan for my child?

Yes, you can – and it can it’s worth it also. Because when investing in ETFs: The sooner you invest, the betterr. The reason for this is the compound interest effect: the earlier you save and invest money, the greater your potential profits will be later.

Many direct banks therefore offer extra custody accounts including ETF savings plans for children – so-called junior custody accounts. These are often even cheaper than conventional depots.

You can open this depot from the birth of your child. What is special: Although the depot officially belongs to your child, you are responsible for it. It is also often not possible to invest in speculative deals that are not suitable for private investors anyway. In addition, you may not withdraw the money invested in a junior deposit for your own purposes.

The child can have the money paid out as soon as they reach the age of majority – or transfer the shares to a conventional custody account. However, it is usually not possible to transfer a savings plan.

One point to keep in mind: If your child has too much wealth by paying the proceeds of an ETF savings plan when they are of legal age, it may be that they do not receive a student loan. The allowance for the crediting assets is currently 7,500 euros per year.

How much money can I save with an ETF savings plan?

You can not say this in global. Because it depends on how high the return, called return, of an ETF is – and how long, how much and how regularly you invest in your savings plan.

An example: If you invested EUR 50 per month in an ETF savings plan with an annual return of 6 percent, you would have a total of EUR 619.5 after one year – including EUR 600 in paid-in money and EUR 19.5 in income. After 15 years, the whole thing looks a little different: Then 9,000 euros would have been paid in, and the earnings would have totaled through Compound Interest Effect however, to more than 5,400 euros. In total you received an amount of more than 14,400 euros.

To calculate your potential return at the end of an investment in an ETF savings plan, simply use certain online portals. There you can enter how high your monthly deposit is, how high the possible return or interest of an investment is and how long you invest your money.

But be careful: In reality, it is impossible for an interest rate – your percentage return – to remain constant over the years of savings and investments. Because the percentage return on the stock market is constantly changing, if only slightly. Calculators often only represent one interest rate per year – this rate would be the average annual interest rate that the ETF investment will generate for you.

You may also have to suspend a payment – or save more than the amount you entered. However, online portals can only count on a fixed amount per month. A return calculator on the Internet only gives you a clue to roughly estimate how high your future earnings can be.

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