Savings plans for securities are in demand. No wonder: small monthly savings amounts make it easier for many people to use the returns of the capital markets to build wealth. And that is not the only reason that makes the case for savings plans.
1) A financial cushion is becoming ever more important
Take matters into your own hands and set the course for your financial future: this is becoming ever more pressing, especially for the younger generations. According to the latest projections by the Federal Statistical Office, the number of people aged 67 and over is expected to rise from 16 million to a projected 20 million by 2035. And while the large „baby boomer“ cohorts leave working age in the 2020s, much smaller younger cohorts are moving up behind them – a problem for a pay-as-you-go pension system in which statutory pensions are financed from the contributions of those currently in work. What is more: for private retirement provision, traditional interest-bearing products are all but useless for building wealth. The ECB's key interest rate is stuck at zero. Interest-bearing products yield – if anything – next to nothing. That said, the options for setting up savings plans for securities have become considerably more varied in recent years. Setting up such savings plans is now very simple.
2) The regularity saves „mental energy“
Humans are creatures of habit: that is not just an empty phrase, but has been demonstrated many times over by cognitive research. Our brain saves energy through „automatisms“. We do not weigh up the pros and cons of everyday actions such as brushing our teeth all over again every time. Savers put this fact to good use: a savings plan can be set up with comparatively little effort and only a small amount of capital. quirion's ETF savings plans, for example, are available from as little as 25 euros a month. Once it is set up, everything then continues automatically. That makes it easier to stick with it. And yet savers stay in control. With quirion, savers can adjust or pause their monthly payments flexibly and free of charge.
3) The compound interest and cost-average effects help you build wealth
Two effects give an extra push to building wealth with securities savings plans. First, there is compound interest, which is often referred to as a „return turbocharger“. In this case, compound interest is not literally about interest – rather, it is about the fact that income from securities is immediately reinvested and likewise makes a contribution to the overall return. A worked example illustrates the effect: with a monthly savings rate of 150 euros and a return of six percent p.a., the capital adds up to 10,477 euros after five years. The share made up of contributions (9,000 euros) is 86 percent, and that of income 14 percent. After 25 years, the capital stands at 101,966 euros. The share made up of contributions (45,000 euros) is 44 percent, and that of income 56 percent.
On top of this, savings plans benefit from the cost-average, or average-cost, effect. This means that more units are bought when prices are low – and fewer when prices are high. Over time, this can lead to comparatively favourable average costs.
4) A long-term horizon and diversification reduce the risks
Saving in securities such as equities – isn't that far too risky? It does not have to be, provided certain aspects are taken into account. A long-term investment horizon is more or less a given with a savings plan. Even though past performance does not allow any forecast, it can nonetheless be shown that investing in the stock markets over the long term stabilises returns. The chart demonstrates this using the DAX as an example.
As with all investments, the following also applies: diversification helps to reduce the risks. ETF savings plans relate to an index and therefore always to a large number of securities. The DAX is comparatively narrow compared with other indices – even after the recent increase in the number of constituents from 30 to 40. At quirion, savers make use of the diversification effect not only within broadly based ETFs, but also at the portfolio level. quirion's globally positioned ETF portfolios give investors a stake in the performance of around 10,000 companies in total from more than 70 countries.
5) Savings plans also make a great gift idea
The piggy bank in the children's room has had its day. If you want to set money aside for the next generation, a savings plan is a better alternative. With a children's savings plan from quirion, you opt right away for genuine asset management. If you want to give a „savings impulse“ as a gift: with quirion's new prepaid cards, that is really easy. The vouchers are now available in more than 3,600 Edeka stores. They can be used, for example, to take the first step when setting up a savings plan.
More about savings plans at quirion is available here.
