Sunday May 31, 2020
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Even if the corona pandemic swirls the economy and the stock market, investors should keep a cool head when investing. With the right savings plans, this is easy and inexpensive.
The ball is rolling again in the Bundesliga, and elsewhere attempts are being made to return to normal. This also applies to the stock exchange, where the effects of the lockdown still cause great uncertainty. But saving with so-called ETFs also offers advantages in times of crisis. These three letters sound complicated, but they are not.
The bulky term ETF hides so-called exchange-traded funds, i.e. exchange-traded index funds. An ETF generally replicates an index, i.e. a bundle of securities that can be very different, such as stocks, bonds or commodities. An ETF on the Dax, for example, tracks the performance of the leading German index, which includes the 30 largest German stocks. The ETF stubbornly tracks price movements up and down. This has the advantage that investors participate fully in price increases on the stock market, but the disadvantage is that this also applies to falling prices.
This also makes it clear: ETFs are a product with which investors can once again benefit from normality on the stock markets and that is long-term rising share prices. The longer the investment horizon, the greater the likelihood that stocks can generate positive returns. Most of the correction phases on the stock markets can be spanned over a longer period of around ten years. The 2008 financial crisis lasted about 1.5 years. In addition, the costs for an ETF are generally significantly lower than for active funds, since no fund manager has to be paid. They also often outperform active funds.
With ETFs, the risk can also be spread widely and individual risk, namely that a company’s share falls, can be eliminated. Because an index to which an ETF refers contains numerous stocks. Since there are very different indices, there are also numerous ETFs. There is something for every taste that can be easily found on the popular Internet portals.
If you want to invest widely worldwide, you can buy an ETF on the MSCI World that invests in shares of the largest companies from industrialized countries. US companies are a focus in the index. Three comparable ETFs are the products with the WKN A2H59Q (Amundi), LYX0AG (Lyxor) or A0RPWH (iShares). Those who prefer to rely on the domestic economy will find what they are looking for at Dax ETFs: DBX1DA (Xtrackers) or ETF001 (Comstage).
A selection for a robust depot
The trendy and popular US technology stocks can be covered with a Nasdaq 100 ETF, such as WKN 801498 (Invesco) or A0YEDL (iShares). A bond ETF is also a good addition to a balanced mix: the product with the WKN LYX0XH (Lyxor) refers to short-term euro government bonds and the A143JN (Vanguard) to short-term US government bonds. With this ETF selection, you can set up a balanced portfolio that is also well equipped to return to normal.
To prepare for the return to normalcy also means that price declines should always be used for purchases on the stock market in order to achieve attractive returns in the long term. This step often requires courage, but the ups and downs on the markets are part of life on the stock exchange. In order to have a better grip on emotions, an automatic investment in the stock market is attractive because it tends to generate positive long-term returns.
This path to normality can be achieved in various ways with ETFs. Investors can buy them directly on the stock exchange like a stock or purchase them through a savings plan. ETF savings plans allow investors to participate in the equity markets for small monthly amounts. The minimum is usually 25 euros, which is used to buy shares in an index. Falling prices can even be an advantage: the lower the index is listed, the more shares investors receive for the regularly used amount of, for example, 25 euros. Then you buy cheaply.
Negative phases of the stock market are problematic when investors need the money and have to sell at low prices. Planning is therefore helpful: If a major purchase is due in a year or two, the scope of the savings plans can be reduced slowly or payments can be suspended entirely. But then don’t forget to come back and take advantage of the savings plans.
This article does not constitute a recommendation to buy or sell investment products such as ETFs. No liability is assumed for the correctness of the data.
Benjamin Feingold operates the Feingold Research stock exchange portal. It offers a daily market letter, which you can test free of charge for 14 days. Register at [email protected]
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