Anyone who wants to invest in ETFs is quickly faced with a decision: should the available capital flow immediately as a one-off investment or rather month after month in a savings plan?
• Savings plans offer flexibility and enable regular investments starting from just 25 euros
• The cost averaging effect smoothes price fluctuations over time
• One-off investments take advantage of the compound interest effect and market developments right from the start
When the ETF savings plan shows its strengths
The ETF savings plan offers a low-threshold entry into the world of investments. Fund shares can be purchased for amounts as low as 25 euros per month – ideal for anyone who does not have large sums of money but still wants to continually build up assets. The way it works is very simple: ETF shares are automatically purchased at set intervals, usually monthly. The savings rate and rhythm can be adjusted, paused or completely adjusted at any time.
An important aspect of the savings plan is the so-called cost-average effect. Regular purchases at different prices create an average price over time. As can be seen from Raisin’s article, when prices fall, the losses from the savings plan can be lower than with a one-off investment, as more shares are continually purchased at cheaper prices. When markets rise, however, the increase in value is also lower because the capital is only invested gradually.
Particularly practical: portfolio management is now free with many modern neobrokers, and savings plans are often executed without any fees. This makes the savings plan a flexible solution for regular investments from your current salary.
The one-time investment makes optimal use of time and compound interest
If you have a large sum – around 1,000 euros or more – for which you do not plan to use it in the short term, you should consider a one-off investment. The decisive advantage lies in the compound interest effect: the entire capital works from the start and benefits from the performance over the entire investment period.
As extraETF shows in a calculation example, this difference can be clearly noticeable: With an assumed annual return of 8 percent over 30 years, a one-off investment of 10,000 euros increases tenfold, while a savings plan with the same total amount (divided into monthly installments) only achieves around four times as much over this period. The reason is that with a one-off investment the full amount is paid interest immediately, whereas with a savings plan the capital is only gradually available to generate returns.
With a one-off investment, however, the time at which you start plays a more important role than with a savings plan. As justETF explains, there is a risk in buying at a peak – markets will then need at least one cycle to recover. If you need more psychological security, you can divide a larger sum into several partial amounts and invest them staggered over a few weeks or months. What remains important, however, is that a long-term investment horizon of at least 15 to 20 years helps to ride out possible price fluctuations and market collapses.
The fee structure differs depending on the depository provider: with classic direct banks, one-off investments can cost 5 euros or more per order, while cheap neobrokers often only charge 1 euro or no fees at all. The higher the investment amount, the more these costs are put into perspective.
When the ETF savings plan shows its strengths
There is no general answer to the question of savings plan or one-off investment – it depends on your personal initial situation. As extraETF emphasizes, the best form of investment depends on the investable capital and your personal investment strategy. If you can regularly put aside part of your salary, you are best served with a savings plan. Automatic investing requires hardly any time and allows you to continuously build wealth without having to invest in large amounts of start-up capital.
However, if a larger sum is available – be it through inheritance, bonus payments or saved capital – a one-off investment makes more sense. The money can immediately go to work for retirement or other long-term goals and benefit from the full compound interest effect right from the start.
Both approaches are not mutually exclusive: a combination of a one-off investment and an ongoing savings plan can make sense in order to invest existing capital immediately and at the same time invest additional funds on a regular basis. This means you benefit from both the maximum compound interest effect of the one-off investment and from the risk diversification through continuous purchases at different prices. In any case, it is important to have a long-term investment horizon of at least 10, preferably 15 to 20 years, in order to be able to ride out market fluctuations.
When choosing a portfolio provider, you should pay attention to free portfolio management and low execution fees. Many modern brokers today offer attractive conditions for both savings plans and one-off investments, so the decision should primarily depend on your personal financial situation and not on the fees.
D. Maier / editorial team finanzen.net