ETFs, Exchange Traded Funds, have existed since March 9th, 1990.1You simply copy a given index automatically. Using the example of the DAX, the German stock index, this means that the shares that are included in the DAX are also included in the ETF of the DAX. The advantage: thanks to the automated copying, ETFs are both cost-efficient and transparent at the same time, because we can see which stocks the associated ETF holds by looking at the actual index. And since ETFs can be traded like stocks on the stock 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). They have recently become interesting for private investors mainly because of the savings plan option.
What is an ETF savings plan?
Comparable to a classic savings account, a fixed amount is regularly paid into an ETF, which can sometimes be as little as one euro per month. However, this money is not only placed in an account, but used to buy ETF shares. If the ETF’s price is low, more shares can be bought; if it’s higher, fewer shares can be bought for the same money, but they have more value.
And how exactly does that work?
Just as easy as a savings book, actually. You open a depot with a broker. You connect this depot to your account. You then look for the ETF that suits you, use the savings plan option and determine the amount and frequency of the deposit. For example 25 euros per month. The specified amount is then regularly debited from your account and flows directly into the selected ETF via your deposit. You connect this deposit to your account. You then look for the ETF that suits you, use the savings plan option and determine the amount and frequency of the deposit. For example 25 euros per month. The specified amount is then regularly debited from your account and flows directly into the selected ETF via your custody account.
Does this also pay off with inflation and low interest rates?
Now and hopefully also in the future. Because the chances are not that bad. For example, as measured by the world’s largest index, the MSCI World Index, global markets have returned an average of 5.4% per year over the past 52 years (1). On the other hand, there has been an average annual inflation of 5.15% since 1992 in Germany and the low interest rates of the last 13 years (34). Even if more than 50 successful years are of course no indicator for the future. But there are estimates, for example from the investor portal extraETF.com, that by 2026 every fourth person 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 for this. For one thing, our attitude towards investing has changed. After all, old-age provision or children’s education are examples that we generally can no longer or do not want to finance through savings alone. At the same time, the number of ETFs that can be saved in Europe has been growing steadily from 2,105 to 3,350 in the last ten years, as extraETF found out (5). In addition, there are the modern neo-brokers who, with their online offer, enable a simple and inexpensive entry into the subject. The latter in particular makes investing via ETF savings plans interesting for the younger generation of millennials.
And what does the future say?
Looking into the crystal ball is of course difficult. But there are forecasts that expect ETF savings plans to continue growing strongly at around 33 percent per year (5). In addition, it is assumed that the investment volume invested in ETFs will increase by 35% by 2026, which would amount to around EUR 350 billion (5).
The reason for this positive perspective are primarily five assumptions:
1. Sensible savings alternatives are still in short supply.
2. Interest rates remain low and traditional saving unattractive.
3. ETF savings plans are still being offered at low cost.
4. Bank discount campaigns continue to be supported by ETF providers.
5. New offers that enable savings and asset accumulation via ETFs are becoming established.
Short summary Good idea and good plans
In conclusion, investing for interest and inflation can be a good idea to build yourself up financially. And the past figures show that ETF savings plans have so far been ideally suited for this, but there are also good signs in the future that a well thought-out investment strategy could really pay off here. We stay tuned and above all interested and invested.
Sources
- onlinebanken.de; history on ETFs; 03/23/2022
- 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 on 04/01/2022 (the value for the year 2022 refers to January to March of the year 2022 and the assumption that the prices neither fall nor rise until the end of the year)
- Federal Agency for Civic Education; The Encyclopedia of Economics; low interest rate policy; retrieved on 04/01/2022
- extraETF; ETF savings plan market 2026; 03/18/2022
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