ETF savings plans are among the few financial products that independent experts fully recommend. Even with small monthly amounts, investors have good opportunities for returns. What is to be considered?
Even if interest rates are currently rising again: In order to save promisingly, investors should not only keep an eye on overnight or fixed-term deposit offers. “For a number of years now, we’ve noticed that consumers are becoming more and more familiar with ETFs,” reports Thomas Beutler from the Saarland consumer advice center.
And for him one thing is certain: ETF savings plans in particular are the ideal way to start investing in shares. Beginners in particular would be relieved of their fears by the small amounts. The magazine “Finanztest” recommends exchange-traded index funds, so-called ETFs, also because of their good return potential.
Savings plans that reflect global equity funds in the ETF are ideal. “So that means I save a constant amount in the stock market every month or even quarterly,” says Roland Aulitzky from “Finanztest”. These ETF savings plans are among the rare financial products that he can recommend unreservedly.
What are ETFs?
An exchange-traded index fund, or ETF for short, is a “replica” of stock market indices: a fund company uses the investors’ money to buy the securities that are contained in an index. The aim of an ETF is to achieve exactly the return that the index achieves. Different indices can be mapped, such as the DAX, the S&P 500 or the world stock index MSCI World.
ETFs can be built in two different ways – a distinction is made between “physical” and “synthetic” ETFs. With “physical” ETFs, the securities (shares) in the index are simply bought later. As a result, investors know exactly in which securities they have just invested their money. With a “synthetic” ETF, the shares are not bought individually, but the ETF provider has the desired performance guaranteed by a bank. In return, the bank receives a basket of known stocks from the ETF provider.
Small savings rates, long investment periods
The savings plans are also an option for young people who can only put a little money aside. Because starting with a monthly amount of ten or 20 euros is basically possible.
Before you conclude an ETF savings plan, you should think about the monthly savings rate and the approximate savings period. “That’s why it’s necessary to examine your own asset structure carefully,” according to the experience of consumer advisor Beutler. Because money should only be invested that you can do without in the long term.
This is the only way to sit out interim losses in the event of price fluctuations. “Of course you have to be prepared to endure a stock market crash,” said Aulitzky, editor of “Finanztest”. His tip: for “self-protection” it is best not to look at the depot so often.
Also important: from the point of view of consumer advocates, the minimum savings period for ETF savings plans is ten years, or even better 20 years.
Opportunities for good returns with lower costs
A calculation example from the “Finanztest” experts: If you calculate back today and had paid into an ETF savings plan on the so-called MSCI World for 30 years, you would have come up with a total of around 270,000 euros with 200 euros per month. The real deposit would only have been around 72,000 euros.
In addition, according to “Finanztest”, the ETF savings plan has a few other advantages. Important point: the comparatively low costs. In addition, investors are flexible and could theoretically end the savings plan at any time. The savings rates can also be freely selected within certain limits. In addition, the fund shares are protected should the bank or fund company go bankrupt.
Warning from the cost trap
One problem is that not all banks offer ETF savings plans. Investors often do not find what they are looking for, especially with savings banks, branch banks or cooperative banks. For many new investors it will therefore be necessary to open an additional custody account with a direct bank, fund bank or broker. It is important to pay attention to possible depot costs.
In addition to the custody account, the investor must also select the ETF savings plan. “The core recommendation is to invest as broadly as possible, i.e. worldwide, in as many countries and sectors as possible,” explains Aulitzky. Funds based on a ready global stock index, such as the MSCI World index, the MSCI All Country World index or the FTSE All-World index, are therefore recommended.
Of course, ETF savings plans may incur fees. “Finanztest” advises that one should not overestimate the differences between a free and a cheap offer. However, it is also expressly warned of a cost trap: Anyone who saves with certain providers with very small installments has indisputably high costs.
The consumer advice center also recommends looking at the institutes’ price lists for the costs – these are usually called commissions, order or transaction costs. If there is no fixed fee in addition to the percentage fee, it makes sense to agree on higher savings rates quarterly or half-yearly instead of smaller monthly savings rates.
Flexible entry and planned exit
Of course, the question also arises as to when is the right time to conclude an ETF savings plan. Unlike other investment products, this is not crucial, says “Finanztest” editor Aulitzky. Concerns about whether the current stock market high will soon be followed by a setback does not play a role in the savings plans.
As easy as it is to start a savings plan, it is all the more difficult to successfully complete it. The decisive factor here is the timing, explains Thomas Beutler from the Saarland consumer advice center. Here it makes sense to consider in advance when the savings plan should expire, and then to keep a close eye on the prices two to three years beforehand.
There is also the option of selling fund units step by step, i.e. in several tranches. With such a fragmented sale, the “perceived risk” can be reduced somewhat. But: Here, too, you should inquire about the selling costs in advance.
Conclusion: Even if the ETF savings plan is a very simple financial product – of course you have to do something with it.