There are plenty of reasons to save. But is it worth it to save only small amounts every month? Definitely, experts say. However, another decision is more difficult.
You can never start saving early enough. Everyone has probably heard this sentence – and it has a true core. After all, time and endurance are important factors when investing as much money as possible in the end.
This also applies if you can only cover a rather small amount per month, for example 100 euros. “Even with long-term savings, you can achieve a lot with this,” says Thomas Mai of the Bremen Consumer Center. Especially with the retirement provision you save over decades, according to the financial expert. “The earlier consumers start, the better.”
Because then the compound interest effect comes into play longer. Together with the invested capital, the annual interest income is paid interest.
An example: Those who save 100 euros a month for 30 years have an end-of-year capital of a good 58,000 euros with an annual return of three percent. He paid in a total of 36,000 euros and earned interest of over 22,000 euros. If you pay in the monthly amount for five years longer at this interest rate, the final capital is already at a good 73,700 euros.
Investors should not underestimate inflation
The return on the investment is another important factor for consumers. It should balance out the inflation rate and ideally even be significantly higher than it. Saidi Sulilatu represents this view from the consumer portal “Finanztip.de”. In an online video about inflation and the compound interest effect, he says: “Creeping inflation is so dangerous because we don’t take it into account in our day-to-day life and generally not in our investment behavior.”
However, model calculations should take the inflation rate into account, as Sulilatu explains using an example: he assumes average inflation of two percent per year. Whoever invests 200 euros per month with 0.5 percent annual interest over a period of 35 years has an end capital of 222,000 euros with assets paid in 84,000 euros. If you subtract two percent annual inflation, the real price would be 147,000 euros – a loss of 73,000 euros.
The yield attracts on the stock exchange
But where is there still a five percent return? You may find them on the stock exchange, such as stocks and exchange-traded index funds (ETF). According to Sulilatus, this is one of the few ways to achieve a return that is significantly above the inflation rate in today’s low interest rates.
But the investment should not be selected first with a view to attractive returns, advises Prof. Ingrid Größel. “At the beginning you have to ask yourself what you want to save for,” says the research director for economics at the Institute for Financial Services in Hamburg.
Anyone who saves a security buffer, for example, must be prepared to make payments at all times. This means that certain types of investment are out of the question – shares, for example. “Their course can change every day. So it can happen that you have to sell at the wrong time if you suddenly need money.” In the worst case, instead of nice returns there is loss. In this case, the monthly savings are better deposited in a checking account or call money account.
If you can, you should increase the amount
Mai advises that ETFs be widely diversified for long-term investments. “Especially as a savings plan, they are one of the cheapest options and can minimize the risk through broad diversification.” And if you don’t know for sure whether you have to save part of the savings, put part of the monthly savings in a call money account.
However, the following always applies: Of course, the investment amounts are a very important factor in addition to the period, fees or interest. 100 euros a month is a start. If the financial scope grows, it is advisable to increase the amount.
A final example illustrates the effect: If you invest 100 euros a month for 30 years with an annual return of five percent, you ended up with almost 81,900 euros. At 200 euros it would be double: a good 163,800 euros.