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Saving plan

A sustainable savings plan takes time and needs to be structured carefully.

When it comes to saving, people tend to have different definitions. For our clients and for us, a saving plan is a systematic approach, including a suitable long-term investment strategy. There should be no room for random and emotional short-term investing when it comes to establishing a sustainable saving plan for your future. Most of all, it is essential to take your time to make a detailed plan, as early as possible. You should also make sure the chosen investment strategy is in line with your individual needs and adjust or rebalance your asset allocation if necessary. We have summarized some five essential “Dos and Don’ts” each when it comes to saving plans:
Dos
Don’ts
1. Start saving early and invest with a systematic approach.
1. Do not try to time the market.
2. Stick to long-term goals, and create a cash cushion for unforeseen events
2. Do not fail to consider inflation and the actual loss of purchasing power over time.
3. Repay your loans, reduce recurring expenses, and start benefiting from compound interest instead.
3. Do not underestimate the length of retirement.
4. Automate or schedule your savings.
4. Do not make salary your only source of income, and never underestimate the cost of living.
5. Stay diversified and review your portfolio if necessary.
5. Do not panic sell or make other emotional investment decisions.
Dos:
1. Start saving early and invest with a systematic approach.
2. Stick to long-term goals, and create a cash cushion for unforeseen events
3. Repay your loans, reduce recurring expenses, and start benefiting from compound interest instead.
4. Automate or schedule your savings.
5. Stay diversified and review your portfolio if necessary.
Don’ts:
1. Do not try to time the market.
2. Do not fail to consider inflation and the actual loss of purchasing power over time.
3. Do not underestimate the length of retirement.
4. Do not make salary your only source of income, and never underestimate the cost of living.
5. Do not panic sell or make other emotional investment decisions.
Unfortunately, we see that most people have not saved nearly enough for retirement and miss out on the benefits of compound interest and investment income. The terms saving and investing should be used analogously.

What difference can compound interest and periodic deposits make?

Albert Einstein called compound interest the eighth wonder of the world: “He who understands it, earns it; he who doesn’t, pays it.” Compound interest will let you earn interest on your interest. While you have to work for the money you initially invest, from then on, your money works for you. If you add periodic deposits (monthly, quarterly, or annual savings) to your investments and choose to reinvest all interest earned systematically, you achieve superior results. Numbers demonstrate this better than words. Let us have a look at three practical examples:

Let’s see three practical examples:

No compound interest, no recurring deposits:

Initial capital:
100k EUR
Interest rate
6% per annum
Duration:
25 years
Compound interest:
No
Deposits:
Nobody
Final capital:
250k EUR

Compound interest, but no recurring deposit

Initial capital:
100k EUR
Interest rate:
6% per annum
Duration:
25 years
Compound interest:
yes
Deposits:
Nobody
Final capital:
429k EUR

Compound interest and periodic deposits:

Initial capital:
100k EUR
Interest rate:
6% per annum
Duration:
25 years
Compound interest:
yes
Deposits:
1k EUR/mese
Final capital:
1,1mln EUR
This simulation/ figure is for illustrative purposes only. Past performance is not indicative of future results. The information contained in this simulation/ figure has been gathered from sources we believe to be reliable. However, we do not guarantee the accuracy or completeness of such information, and we assume no liability for damages resulting from or arising out of the use of such information. Further, the performance numbers displayed herein may have been adversely or favourably impacted by events and economic conditions that will not prevail in the future. Accordingly, they do not constitute an offer or invitation to subscribe for or purchase fund units and are provided for information purposes only.

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