Therese Fässler: Swiss Should Invest in Stocks More

You work to motivate residents of Switzerland to invest in stocks. What motivates you to work towards that goal?

Therese Fässler: Some time ago I became conscious of how pressing the topic of inequality is – not just inequality between different countries, but inequality within countries as well. The big question is why so few people hold so much wealth while so many have so little.

A small portion of the population owns a huge portion of the economy because they hold shares in companies. They profit when the economy performs well. The solution is for everybody to invest in shares, including people with only small amounts of savings.

In other words: Buying a share of Apple is a better investment than buying an iPhone.

As an American living in Switzerland, you have a good understanding of both Switzerland and the US. Why, in your opinion, do Swiss invest in the stock market much less than Americans do?

Switzerland is known as a land of savers which view the stock market with skepticism. But that view only reveals part of the full picture because Swiss do hold relatively large stock investments via their pension funds.  

Swiss tend to be very good at saving, budgeting and insuring themselves. But when it comes to building wealth and saving for retirement, they are heavily dependent on the state and on financial institutions. Most Swiss do not invest in stocks directly themselves.

What are the advantages of investing in stocks rather than savings accounts or other investment vehicles?

Savings accounts are essentially very different to stock investments. The value of shares fluctuates based on supply and demand. This fluctuation in value poses a risk. Savings account balances do not fluctuate and yield interest which, ideally, balances losses in wealth caused by inflation.

Historical data shows that stock investments have delivered higher returns than bonds or savings accounts. Additionally, experts agree that stock investments provide good protection against inflation. Experts refer to the relation between inflation and yields as the Fisher effect.

That makes stocks the most suitable investment for investors with long-term investment horizons. Yes, the value of stocks can certainly fluctuate over the short term. That is why it is important to select and monitor your investments carefully. You should only invest a portion of your wealth in stocks, and you should only invest money which you can afford to keep invested for many years.

How do you motivate the Swiss to invest more in stocks?

I work to create awareness of the importance of financial competence. The goal is to create new communities of investors which assist each other in investing.

I also find it important that students are educated about economic cycles and the value of holding capital. Towards that end, I held a course for teachers at the Badener Berufsschule which explains how individuals can profit from economic growth in spite of the absence of interest on bank account balances.

In your opinion, should Swiss invest in the stock market?

In principal, everybody should invest in the stock market within the limits of their investment capacity. Over the long term, widespread ownership of shares also allows everyone to participate in economic decision-making process.

According to modern portfolio theory and empirical knowledge, everyone should invest at least a fraction of their wealth in stocks in order to take advantage of the so-called equity risk premium. I clarify this further on my blog.

But according to numerous studies, investing in individual stocks is not a rational approach.

That brings us to an important point: diversification. Diversification reduces certain risk components. We always recommend diversifying stock portfolios – meaning owning shares in multiple companies rather than one.

Participation is another important factor. As a direct shareholder, you can actively participate in key corporate decisions.

What, in your opinion, are the advantages of owning shares directly as opposed to investing through ETFs and index funds?

Both options allow for diversification. But when you invest though funds, you cannot directly participate in the decisions of companies which your money is invested in. Additionally, the recurring fees charged by funds for investing your money detract from returns. Investing through these collective investment vehicles tends to be more expensive than investing directly. Another point is that most people who invest through ETFs do not know what they are actually investing in.

What do you think of robo advisors?

I am always interested in new developments in the financial space. But I have not yet seen an option which I personally find really impressive. The non-transparent investment models and relatively high costs are the main reasons for this.

You stress the importance of owning shares in companies. But in reality, small investors have virtually no say in corporate decisions. Only institutional investors have any real influence.

Every direct shareholder has the right to vote on corporate decisions. At the end of the day, decisions are made by the majority of shareholders. But in order to participate, you first have to have a vote. In order to get a vote, you have to buy a share. The democratization of the economy is an iterative process with many small steps.

Still, the chance of the stock market ever being democratic is highly unlikely. In practice, a handful of people and companies own the bulk of shares.

It is important to differentiate between corporate governance and the distribution of wealth. We believe that anyone can use shares to build wealth. Even people with little in the way of personal assets can benefit from wealth distribution by becoming shareholders.

As a small shareholder, what would I have to do in order to exercise my voting rights?

When you buy shares through some conventional banks, you are automatically registered as a shareholder. You can then vote on key decisions of the companies you own shares in by mail or in person at annual general meetings.

Other Swiss banks and online brokers do not register you as a shareholder by default, so you have to actively request that your broker register you so that you can obtain voting rights. Some Swiss stock brokers charge additional fees for share registration.

Another problem in Switzerland is that brokerage fees are so high, that buying shares in individual stocks is only worth it if you can afford to invest relatively large amounts of each stock.

There are big differences in costs between brokers. Comparing the brokerage fees charged by different banks definitely pays off.

Tell us more about your company invested.ch: What services do you actually offer? How does invested.ch earn money?

Everyone should invest in stocks. We help by providing information and education, while always recommending that investors take great care when making stock investments. In addition to information, invested.ch also provides users with the opportunity to buy shares through partner platforms. Our offer is transparent, simple and economical. There are no hidden fees. We offer subscriptions and earn money through subscription fees. We do not receive any kickbacks.

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