What is an ETF savings plan?
With an ETF savings plan, investors can build wealth over the long term by investing a fixed amount each month. In doing so, they buy shares in an ETF (Exchange-Traded Fund).
ETFs are exchange-traded index funds that track the performance of a specific stock market index such as the DAX or MSCI World. When an index rises, the value of the ETF increases. If the index drops, the ETF tends to follow.
With a savings plan, you choose which ETF you want to invest in regularly. You can adjust or stop your ETF savings plan at any time via your bank or broker. Depending on the provider and terms, you can start saving in an ETF with as little as one euro per month. You can also choose other savings intervals, such as quarterly or semi-annually. This lets you invest in a broadly diversified market with a small amount, without being limited to a single fund. The earlier you start saving through ETFs, the sooner you can benefit from the compound interest effect.
For example, an ETF savings plan can help build wealth after 10, 20 or 30 years if you invest €100 per month in the MSCI World:
After ten years, you would have saved a total of €12,000, with a portfolio value of €21,531 if you reinvest the dividends.
With an investment period of 20 years, you'd have saved €24,000 with a portfolio worth around €60,000 – meaning your investment would have increased by a factor of 2.5.
If you'd started investing in January 1991, you would have saved €36,000 over 30 years, and by December 2020, your portfolio would be worth €129,798 – more than 3.5 times the amount saved.
Since ETFs are subject to fluctuations, you’ll buy varying numbers of shares each month for the same amount, which means there’s no reliable way to predict how a specific ETF will perform in future or how much you can save with it.
When is an ETF savings plan worthwhile?
An ETF savings plan is worthwhile if your goal is to build wealth long term and you want to plan for the future. You don’t need large sums, but you can start with small monthly amounts such as €25. An ETF savings plan lets you automatically and regularly invest in a range of different securities and benefit in the long run.
Two effects help you achieve this: the cost-average effect and the compound interest effect.
The cost average effect works best when you stay consistent, even during market dips. When prices fall, your regular savings buy more ETF shares, which can lower your average purchase price over time.
By reinvesting your returns, you also benefit from compound interest where your gains can generate even more gains in the long run.
What are the benefits of ETF savings plans?
Setting up an ETF savings plan offers several advantages for both beginners and experienced investors:
Automation: Set how much and how often you want to invest, and the plan takes care of the rest.
Consistency: Regular investing over time helps you benefit from long-term market growth.
Low costs: ETFs are passively managed, making them cheaper than most actively managed funds.
Cost-average effect: This approach helps smooth out market volatility. You buy more shares when prices are low and fewer when they’re high – which can lower your average purchase price and reduce the risk of investing at the wrong time
Low entry point: You can start with as little as €25 or €50 per month which is ideal if you’re new to investing or have a smaller budget
Flexibility: You can change your savings rate, pause or cancel the plan anytime.
Step by step to your ETF savings plan
It only takes a few steps to set up your ETF savings plan and start building wealth:
Set your savings rate: First, decide how much you can invest regularly. With some brokers, you can start with as little as one or €25.
Define your investment period: Think about how long you want to invest for and bear in mind that a longer investment horizon may be better depending on your goal.
Choose a broker: Compare different providers and accounts to open a portfolio and select the broker that suits you.
Choose an ETF: When selecting your ETF, look for broad diversification, reasonable risk spreading and any associated fees.
Set up your ETF savings plan: Define your savings rate, preferred interval and execution date for your investment.
Manage your ETF savings plan: Adjust your plan if your financial situation changes or new investment opportunities arise.
With a Bitpanda savings plan, it’s easy to start building long-term wealth. You can set up your ETF savings plan flexibly and cost-effectively, starting from just €10 per transaction. Whether you're new to investing or already experienced, the Bitpanda savings plan helps you stay on track towards your financial goals.
