Finance

This is how you invest your money comfortably and cheaply

Private pension insurances usually no longer bring high returns and are very expensive. But how else do you make provisions for old age? With an ETF savings plan – what sounds complicated is very easy. This is how you can get started too!

Do you want to make provisions for old age? But with what? Private pension insurance now often no longer brings high returns – and is expensive. Then try a savings plan.

This is particularly useful if you do not want to invest a large amount of money all at once – but rather regularly smaller amounts. There is also such a savings instrument for so-called ETFs. These are special equity funds, i.e. equity baskets in which a computer algorithm simulates a stock index such as the Dax.

With an ETF savings plan, the value of the money you invest develops parallel to the modeled stock index. The highlight: Your risk is broadly diversified. ETFs are also very cheap – especially in comparison to actively managed funds, where you pay a manager who monitors the shares in the fund with high fees.

In addition, you can expect a higher one with ETFs Yield, called yield. Compared to private pension or life insurance – if you take out a new one – an investment offers a decent return and can protect you in old age.

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 can invest for a longer period of time regularly small sums of money 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 a Savings rate from 25 euros per month to get started.

Savings plans with ETFs are a very attractive form of investment, especially for those starting out on the stock exchange. Because ETFs are cheap and comparatively low-risk. To explain: A computer algorithm is used in an index fund 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 losing money low. For example, in the case of an ETF that tracks the MSCI All Countries Index, you are investing in more than 2,700 of the largest publicly traded 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 in a direct bank on the Internet. For this money, the direct bank then buys certain securities, specifically: shares in an ETF that you have previously selected. If the index that “your” ETF tracks increases in value, you benefit from this increase in value – if you sell your shares later, you make a profit.

Especially in times of low interest rates, ETF savings plans are the best perfect combination of saving and investing: Since you pay in new money every month, for example 25 euros, your basic stock of capital grows, and you also benefit from the share income, which is usually well above the interest on the savings book.

In addition, ETF savings plans are 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 pay in more than the originally planned rate.

The point at which the savings plan starts is irrelevant

Another advantage of an ETF savings plan: you don’t have to worry about when to start. Because you do not have to pay a large one-off amount, but regularly add many small sums of money Securities investing, it doesn’t even matter if you get in when prices are falling. In this case, you will get more fund shares for your money – if prices rise again later, you can skim off the profits. However, the exit point is very important (see below).

Basically: Only invest money you won’t need for the next 15 or 20 years. Because in the short term it can be that a share price slips into negative territory. If you then need the money you have invested and have to sell your ETF shares, you may have made losses.

In the long term, however, as numerous studies show, short-term exchange rate fluctuations will even out – so that you will generate profits and benefit from the so-called compound interest effect: because your invested money increases all the more when income that was previously generated is added.

What are the costs associated with an ETF savings plan?

There are various costs associated with a savings plan. You should pay attention to the following points:

  • Deposit costs: Since you first have to open a depositBefore you can start a savings plan, you should keep an eye on these charges. With many online providers and direct banks – in contrast to branch banks – there are no 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, so-called order fees are often incurred. These costs arise when a direct bank makes a specific purchase for you – every time you pay money into your ETF investment as part of the savings plan. These can either be fixed amounts, for example 1.50 euros per savings plan execution – or a percentage of the invested amount, for example 0.2 percent. At 25 euros that would be five cents per 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”, or “TER” for short. ETFs – and thus also savings plans in ETFs – cost much less in contrast to active funds, as no manager has to be paid who the Stock trading controls.

Our tip: Sometimes providers also advertise with ETF action savings plans. With these, the costs are lower for a certain period of time, for example six months. But be careful: Often these are just lure offers. Once the period is up, you’ll pay a significantly higher fee.

How high is the risk with 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 widely. One 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 – this is how you invest in all shares of the companies that an index contains. In addition to the Dax, there are many other stock indices. Of the MSCI World Index for example, tracks the performance of the 1,600 largest company shares from 23 industrialized countries. ETFs based on this index are considered to be 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 diversification. It covers virtually the entire global economy, including the emerging countries. ETFs that track this index are also considered to be low-risk. After all, it is unlikely that all of the stock prices depicted 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 is Entry point is on the stock market. With savings plans, you split up your investment amount and invest piece by piece – so you ultimately have many short entry points.

This reduces your risk of entering the stock market with the entire larger sum if the price is too high. Another plus point shows up in times when prices are falling: With an ETF savings plan, you can buy shares in an index fund at a particularly low price. This is how you get more shares for your money.

Even in times of a crash, when all prices are falling, you can always get in with an ETF savings plan. Because in the long term, the price fluctuations will even out.

Note the exit time

But Attention: In contrast to the entry point, it is important to pay attention to when you exit the investment – that is, 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 thus possibly make less profits or even lose money.

So if you can still wait, wait. It is therefore also important: only invest money that you do not urgently need (see above).

Should I invest with an ETF or a fund savings plan?

It depends on your preferences. As a stock market beginner, however, you should invest with the help of 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 a Stock index replicate, they are cheaper than conventional equity or mixed funds. After all, there is no need to pay a manager to oversee the composition of the fund. With ETFs, the total expense ratio (“TER” for short), which includes all important costs, is therefore significantly lower than for example with equity funds. This also applies to ETF savings plans.
  • Income: With a broad diversification, ETFs achieve at least as high, and often even higher, long-term returns than traditional, actively managed ones Equity funds. This is because even experts rarely manage to make exact forecasts about future market developments – in order to generate better returns than the broad mass of investors. A savings plan with ETFs that map 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. Since an ETF tracks a certain share index, you as an investor know at all times which company shares are Funds contains. Actively managed funds are often less transparent, and investors often only find out with a time delay or on a specific date which stocks the fund is currently made up of.

ETF savings plan – is the MSCI World enough?

The following applies to 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 replicate 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 have MSCI World ETFs on offer.

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

Advanced users can also invest in ETFs through several savings plans. In this way, you can minimize your risk even further – or increase it in a targeted manner if you are interested in potentially higher returns.

How do I compare ETF savings plans?

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

  • Costs: Not only the custody costs, but also management fees and order fees are important (see above). You should pay attention to this when making a comparison.
  • Selection: The different direct banks have a different range of offers. So if you want to choose from many different ETFs, this is the one to look out for. But the following applies: more choice does not mean that better ETFs are offered at the same time. For beginners it is essential that the direct bank has a savings plan on the MSCI World or the MSCI All Country World (see above).
  • ETF type: With an ETF you can basically choose between a so-called accumulating or a distributing ETF. A reinvesting ETF reinvestments possible dividends, i.e. profit distributions by the company, directly. You benefit even more from the so-called compound interest effect (see below). With the distributing ETF, as the name suggests, you receive a regular payment. This distinction also plays a role when choosing an ETF savings plan.
  • ETF brands: It is possible that you are only into certain ETFs Fund 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 brand Fund company
or bank
countries
iShares BlackRock United States
Xtrackers DWS Group
(Deutsche Bank)
Germany
Lyxor Lyxor Asset Management
(Société Générale)
France
Comstage Lyxor Asset Management
(Société Générale)
France
HSBC HSBC Great Britain
Fidelity Fidelity Investments United States
Amundi Amundi
(Société Générale and
Crédit Agricole)
France
Franklin / Franklin Liberty Franklin 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”. “iShares”, “Xtrackers” and “Lyxor” are the ETF brands accordingly. 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 this guide in five steps:

  1. Select a direct bank or online broker: First of all, you have to think about which direct bank or which online broker you would like to invest your ETF savings plan with. A broker buys shares in an ETF on your behalf.
  2. Open depot: Before you can set up a savings plan, you need what is known as a 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 checking account, you can easily make payments from the savings plan. In order to create the deposit and account, you must fill out an online form and identify yourself (see below).
  3. Identify using the Post-Ident procedure: Banks are required by law to establish your identity to prevent fraud or money laundering – and to prevent anyone from misusing your data. In the process, you can either be identified by a Deutsche Post employee in a branch or directly via video chat.
  4. Search for ETF: You can search for an ETF that you have selected beforehand in the custody account’s search mask. 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 can easily find it.
  5. Define the savings rate and savings interval: Now you can select your savings rate and the savings interval (e.g. 100 euros per month). You can usually adjust the rate and the interval later. The selected amount will now be regularly debited from your clearing account. 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 it’s worth it also. Because when investing in ETFs, the following applies: The earlier 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 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 deposit from the moment your child is born. The special thing about it: Although the depot officially belongs to your child, you are responsible for it. Often it is also not possible to invest in speculative transactions that are not suitable for private investors anyway. In addition, you may not withdraw the money you have invested in a junior depot for your own purposes.

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

One point that you should bear in mind: If your child has too high assets when the income from an ETF savings plan is paid out, it is possible that they will not receive a student loan. The tax exemption for the credited 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 yield, known as the return, of an ETF is – and how long, how much and how regularly you invest in your savings plan.

An example: If you invested 50 euros a month in an ETF savings plan with an annual return of six percent, after one year you would have a total of 619.5 euros – 600 euros of which was paid-in money and 19.5 euros in income. After 15 years the whole thing looks a little different: Then 9,000 euros would be paid in, the income added up through the 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 possible 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 rate of an investment is and how long you invest your money.

But be careful: In reality, it is impossible for an interest rate – i.e. your percentage return – to remain constant over the years of saving and investing. Because the percentage return on the stock market changes constantly, even if only slightly. Calculators often only show one interest rate per year – so this rate would be the annual average interest that the ETF investment earns you.

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

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