ETF, Exchange Traded Funds, have been in existence since March 9, 1990.1You just copy the index automatically. Using the example of the DAX, the German stock market index, this means that the stocks included in the DAX are also included in the DAX ETF. The advantage: with automated copying, ETFs are both profitable and transparent as we can see which stocks a related ETF has by looking at the actual index. And because ETFs can be traded like stocks on an exchange, they are also particularly flexible.
More relevant than ever – thanks to the savings plan option
So ETFs have been around for a good 32 years (1). Recently, they have become interesting to private investors mainly due to the savings plan option.
What is an ETF Savings Plan?
As with a classic savings account, a fixed amount is regularly deposited into an ETF, which can sometimes be as high as one euro per month. However, this money is not only placed in your account but used to buy ETF shares. If the ETF price is low, you can buy more stocks, if it is higher, you can buy fewer stocks for the same money, but they have more value.
How exactly does it work?
Just as simple as a savings book, in fact. You open a deposit with the broker. You link this magazine to your account. Then you look for an ETF that is right for you, use the savings plan option and set the amount and frequency of the payment. For example, 25 euros a month. The specified amount is then regularly withdrawn from your account and flows directly to the selected ETF via your deposit. Then you look for an ETF that is right for you, use the savings plan option and set the amount and frequency of the payment. For example, 25 euros a month. The specified amount is then regularly withdrawn from your account and transferred directly to the selected ETF via your escrow account.
Does it also pay off with inflation and low interest rates?
Now and hopefully also in the future. Because the odds aren’t that bad. For example, according to the world’s largest index, the MSCI World Index, global markets have returned an average of 5.4% per annum over the past 52 years (1). On the other hand, average annual inflation in Germany has been 5.15% since 1992 and interest rates have been low for the past 13 years (34). Even if more than 50 successful years is obviously no indicator for the future. However, there are estimates, for example from the investor portal extraETF.com, that by 2026 one in four people in Germany will have an ETF savings plan (5). And then of course the question arises: can so many people be wrong?
Where does this positive development come from?
There are several reasons. First, our approach to investing has changed. After all, provision for old age or children’s education are examples that, in general, we cannot or do not want to finance solely from savings. At the same time, the number of ETFs that can be saved in Europe has steadily increased from 2,105 to 3,350 over the last ten years, extraETF (5) has learned. In addition, there are modern neo-brokers who, with their online offer, enable a simple and inexpensive entry into the topic. The latter in particular makes investing through ETF savings plans interesting for the younger generation of millennials.
What does the future say?
Of course, looking into the crystal ball is difficult. However, there are projections that ETF austerity plans will continue to grow strongly at a rate of around 33 percent per year (5). In addition, the volume of investments invested in ETFs is expected to increase by 35% by 2026, amounting to approximately EUR 350 billion (5).
The main reason for this positive perspective is five assumptions:
1. There are still no sensible savings alternatives.
2. Interest rates remain low and traditional saving is unattractive.
3. ETF savings plans continue to be offered at low cost.
4. Banking rebate campaigns continue to be supported by ETF providers.
5. There are new offers for saving and asset accumulation through ETFs.
Short summary. Good idea and good plans
In conclusion, investing in interest and inflation can be a good idea to strengthen yourself financially. And data from the past shows that ETF austerity plans have so far been ideally suited to this, but there are also good signs in the future that a well-thought-out investment strategy can really pay off. We are up to date and, above all, interested and invested.
- internet banking.de; history of ETFs; 23/03/2022
- Dividendadel.de; Global Equities since 1970: the return triangle for the MSCI World Index; 01/14/2022
- finanz-tools.de; inflation rates in Germany; retrieved 04/01/2022 (value for 2022 refers to January to March 2022 and assuming that prices will not fall or rise by the end of the year)
- Federal Agency for Civic Education; Economics Encyclopedia; low interest rate policy; downloaded 04/01/2022
- extraETF; ETF 2026 savings plans market; March 18, 2022
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