In this interview, Markus Schwab, CEO of Swiss finance app Yuh, delves deeper into savings plans and explains the unique benefits of using Yuh for ETF savings plans.
What exactly is an ETF savings plan Mr. Schwab?
Markus Schwab: ETF savings plans are the secret heroes of long-term investing. Unfortunately, one very rarely encounters them in Switzerland, because hardly any financial service providers are able to fulfill the criteria for seamless performance.
An ETF savings plan is an investment strategy in which you invest a fixed amount of Swiss francs or another currency into an exchange-traded fund (ETF) at regular intervals (normally monthly, but weekly intervals are also used).
Can you give us a concrete example?
Let us use the example of a person who wants to save money using an “active” savings plan. We will call this person Urs. At the end of each month, Urs has around 200 francs left over. He could invest that money in the MSCI World ETF on the last day of each month. That ETF invests in hundreds of the world’s biggest companies that are traded on the stock market.
By using this strategy, Urs kills two birds with one stone. On the one hand, he puts money aside. On the other hand, it is likely (though not guaranteed) that his wealth will slowly grow over the years when it is invested in a well-diversified ETF like that one.
Do savings plans have to use ETFs?
ETF savings plans are definitely the most popular because they offer some amount of diversification. But of course, it is also possible to choose a less diversified strategy and invest in other investment products like stocks through your savings plan. A non-diversified strategy is riskier, but can potentially yield higher returns. That is generally a good idea if you are completely convinced of a company’s future success.
To my knowledge, Yuh is the only financial service in Switzerland that lets you create savings plans with any of the many available stocks we offer. Should you invest broadly, or more selectively? In my opinion, that is up to the personal preferences of each investor. There is no right or wrong.
What is the advantage of making regular payments instead of just investing all at once?
There are several advantages. Firstly, an ETF savings plan can help you develop good investment habits. If you regularly pay in money automatically, you will develop the discipline that is necessary to stick with a financial plan. Even professional investors do not have a crystal ball that shows them the perfect time to enter and exit a position – that is to say, to buy when the price is lowest and sell when it is highest. But if you invest at regular, recurring intervals, the prices you pay will always average themselves out over time.
A savings plan also has the advantage of so-called investment smoothing, because when you invest the same fixed amount every month, the algorithm automatically levels out market fluctuations. That is because you get more assets for your money when prices are low, and less assets for your money when prices are high. This optimizes the relation between investments and stock prices.
Savings plans also help you not to invest emotionally. Because you only invest small amounts of money, it is easier to ignore poorly-performing investments. That helps to reduce the stress associated with fluctuating financial markets. Also, for most people, investing a small amount of money each month is easier than investing a big amount at the end of the year.
The Yuh app is one of the few Swiss options for using ETF savings plans. Why is this product so rare in Switzerland?
Financial services providers can only offer “genuine” savings plans if they meet three different criteria.
Firstly: They must have a pricing model that accommodates small investments, like the 200 francs that Urs can afford to invest. If Urs had to pay 20 francs or 10 percent of his money in fees, that product would not be very attractive for him.
Secondly: They must have a platform that makes it possible to automate investments based on customer orders. While it may seem difficult to believe, most banks do not currently work this way.
Thirdly: They must offer fractional shares – the possibility to choose how much you want to invest. Customers have to be able to invest the same fixed amount of money at each interval, no matter what they are investing in. ETFs and stocks are priced per share. The SMI ETF (symbol: CSSMI in Yuh), for example, currently costs 110 francs per share. You could decide to buy one CSSMI share each month for around 110 francs. But if the price goes up to 300 francs per share, you will have to spend a lot more money each month than you originally budgeted for. That would put your savings plan at risk. Being able to buy fractions of shares avoids this problem.
Yuh lets you choose the amount of money you want to invest in each investment product. So, for example, instead of having to buy a whole share of an SMI ETF for 110 francs, you can specify that you want to invest 100 francs in that ETF (or 90 percent of a share). If the price per share climbs to 300 francs, you can still invest just 100 francs (for 33 percent of share, at that price).
Yuh is the only Swiss investment service that masters all three of those criteria: low fees, automated investments, and fractional investing for all our investment products.
Why should I use a savings plan from Yuh, specifically?
The grass is simply greener at Yuh. As I mentioned above, Yuh is the only service provider that fulfills all of the criteria for a “genuine” savings plan. Many service providers claim to offer savings plans, but there is always a catch: no automation, no fractional investing, high fees, or a very limited selection of investment products.
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Do you use an ETF savings plan yourself?
Of course! I have been a fan of this kind of investment from the beginning, and I shoot off the term “ETF savings plan” automatically whenever someone asks me for my secret financial tips. The unbeatable combination of spreading out risk and investment diversification that you get with ETFs, regularity, and low fees, are the most important building blocks of long-term private wealth building. Savings plans are simple, and the fact that I do not have to spend any though on how much to invest and when takes away the pressure and makes investing a relaxed experience.
What are the most important criteria for choosing the right savings plan strategy?
A savings plan is a rational, careful, mid-to-long-term investment strategy that can deliver good returns through diversification. It is all about actively saving over long terms, and not about chasing the market’s moods.
For maximum diversification, I recommend setting up two or three different savings plans. That way you can use one to invest in a multi-sector, international ETF (like global blue chips), and the others to invest in two niche markets that you personally believe in. For example, I make focused investments in the Swiss economy in addition to a global ETF.
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