Sunday, August 8th, 2021
Tips for the depot
How to review your savings plans
By Benjamin Feingold
ETF savings plans are suitable for long-term wealth accumulation. However, it is not only advisable to review the strategy when there is turbulence on the stock exchanges. What should you watch out for during the deposit check?
Savings plans with exchange-traded index funds are becoming increasingly popular for retirement provision. According to ETF provider Lyxor’s latest Money Monitor, equity ETFs saw positive inflows for the 13th consecutive month in June. ETFs are available for a whole range of asset classes, including bonds and commodities, for example.
The advantage of ETFs lies in their favorable cost structure and their uncomplicated handling, as they stubbornly map an index. In terms of fees, ETFs are therefore below comparable actively managed funds, and shares in ETFs can be bought and sold on the stock exchange like stocks. Except for the low fees incurred, they track the price movement in an index such as the Dax one-to-one. That means: With an ETF savings plan, I can regularly invest in an index with a low monthly contribution – usually from 25 euros – without any problems.
Check the composition regularly
Are the savings plans in my portfolio still up-to-date in terms of personal preference and price expectation? Investors should take a look every now and then to see whether the industry mix and recent performance are still optimistic and in line with their own expectations. If this is not the case, adjustments can be made – for example, exchange ETFs or leave the savings plan for a certain period of time – for example until the next review.
In principle, different asset classes such as stocks, bonds or commodities can be sensibly combined in order to create a long-term balanced portfolio. “There are different strategies for investing with savings plans that can be implemented with the help of ETFs,” says Christian Bimüller from Blackrock, who is jointly responsible for the digital partner sales of products and services in continental Europe.
iShares, the ETF division of Blackrock, offers various sample portfolios on its website for the specific application of savings plans when investing. “Similar to the stock portfolio, investors will find the mix that suits them best in a combination of different ETFs. This can be the regionally different, broadly diversified portfolio of different equity ETFs or a portfolio with a focus on bonds or commodities,” says Bimüller. However, it is important not to lose sight of the costs. Numerous neobrokers offer ETFs without fees. The largest selection of fee-free savings plans are available from Smartbroker and Scalable.
Don’t be afraid of falling prices
Price drops and the resulting losses should not be a cause for concern, because they are completely normal on the stock market. Of course, there can be crashes and longer periods of weakness, but stocks in large companies that are long-term established on the market, such as SAP or Daimler in Germany, have repeatedly shown in the past that they can recover from setbacks.
Falling prices can even be an advantage: the lower the index is quoted, the more shares investors get for the regularly invested amount of, for example, 25 euros. You then buy cheaply. In such a situation, it is also possible to top up with a one-time investment with a savings plan.
Anyone who invested in the Dax about a year ago after the Corona crash can now look forward to roughly doubling. In the USA, the indices were able to gain even more in some cases.
Picking up on new trends
It is not just losses or gains that can induce investors to switch the composition of their savings plans. A new focus on investments can also be a reason, for example, to invest sustainably. “With our inflows, we see that the proportion of so-called ESG ETFs is increasing more and more,” says Christian Machts, sales expert at Fidelity International. ESG stands for Environment, Social and Governance and means that companies act sustainably with regard to these criteria. “There are now numerous indices on which an ETF is based as an ESG index Research on these products suggests that investors don’t have to forego performance, says Machts.
Sustainable investments can be found in different asset classes. In the case of stock markets, many index operators have reacted and, in addition to the classic index such as the well-known MSCI World, which is considered a reference to a global stock market, also offer a sustainable version, i.e. a kind of ESG-MSCI World, which takes the above-mentioned aspects into account Stock selection taken into account.
An ETF savings plan check should also be carried out for long-term investments at least every six months and in the event of trend-setting events in order to check whether the selected strategy is still the right one. In this way, the investor can be sure that his orientation is right and corresponds to his personal preferences.
This article does not constitute a recommendation to buy or sell investment products such as ETFs. No liability is assumed for the correctness of the data.
Benjamin Feingold operates the stock exchange portal Feingold Research.
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