Pension

Investment tips: can you invest without risk?

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Do you want to make a profit without taking any risks? Sorry, that's wishful thinking. That said, investing your money can pay off, even if you don't have very much. In fact, not investing also comes with risks attached.

A study published in 2022 (in german) revealed that only around half of Swiss households have money invested in securities, with people in the French- and Italian-speaking regions showing a tendency to invest less than those in German-speaking Switzerland. Some 60% of men have investments, compared with just 40% of women. The higher your level of education, income, wealth, and age, the more likely you are to invest your money.

The fear of losing money on investments

Many Swiss men – and even more Swiss women – prefer not to invest their money. Their main reason is uncertainty. They aren't interested in investment topics, don't know much about financial markets, and are scared of losing money on bad investments. In other words, they simply don't trust themselves to invest well. A significant number of people also don't believe that they're rich enough to invest. Most of them are wrong.

Inflation eats away at your savings

Sadly, this cautious inaction is often the very reason why people lose money. Even if your bank balance appears to stay the same, inflation reduces the real value of your savings. It isn't possible to make up for this loss when interest rates are low. If you want to preserve or, better still, increase the value of your capital, you need to achieve a return that's at least equal to the rate of inflation. Long-term investments can deliver this return.

How inflation affects your savings account

Over the long term, Swiss inflation has averaged approximately 2.3% a year. This means that CHF 10,000 held in a bank account paying 0.3% interest is only worth roughly CHF 8,000 after ten years in terms of real purchasing power.

Five tips for reducing risk

You can never completely avoid risks when making investments, but you can minimize them. Investing successfully always involves finding the right combination of security, profitability, and availability. The five tips below cover the main points to bear in mind. 

1. Risk profile: find the right balance

Whether your focus is on preserving your invested capital, generating returns or somewhere in between, working out your personal investment strategy is all about balancing risk and return. What sort of investment return are you hoping to achieve, and which risks are you willing and able to accept? Your appetite for taking on risk is a matter of personal preference, but your ability to tolerate risk is based on hard facts.

  • Will you have enough regular income to cover your fixed costs?
  • Do you have a lot of money saved up? 
  • Do you not have to depend on the money you've invested?
  • Are you planning for the long term?
  • Is your retirement still a long way off?

The more of these questions you can answer "yes" to, the greater your risk tolerance. Your risk tolerance and risk appetite together make up your individual risk profile, which determines whether you should opt for conservative or return-oriented investments. If you can afford to be more risk-friendly, experience shows that you should be rewarded with a higher return over the long term.

2. Diversification: spread your investments broadly

Sensible investing hinges first and foremost on good diversification. Dividing your money up among a variety of different investments spreads the risks involved, allowing profits in one area to offset losses in another. Not putting all your eggs in one basket is the simplest way to minimize risk. Funds and ETFs are generally a great way to ensure broad diversification.

3. Investment horizon: be patient

Market prices are forever going up and down. This is the nature of markets, and the technical term for it is volatility. The longer your investment horizon, the more chance you have of generating an attractive return. Don't panic if an investment performs badly for a while. Time is on your side, and it will probably recover sooner or later. Experts recommend staggering your investment if it involves a large amount of money. This reduces the risk associated with getting on board at a bad time.

4. Objectivity: keep a cool head

Stock markets tend to rise over a long-term investment horizon. There will always be "correction" phases in which prices fall. The best thing to do during these is keep a cool head. Experienced investors don't let themselves get unsettled by the psychology of the markets. As long as you don't sell your stocks at rock-bottom prices, you haven't actually lost any real money. It makes more sense to stick to a long-term strategy and ride out any rough patches. That takes discipline and strong nerves, but it's worth doing.

5. Know-how: seek advice

Prospective investors who lack specialist knowledge often feel intimidated by the world of finance, but investment expertise isn't always essential to success. Don't be afraid to ask your trusted bank or insurer for help. The important thing is to start by working out an investment strategy that's precisely aligned with your needs. Your advisor will ask all the right questions to help you in defining a specific investment goal and a plan for achieving it.

Key asset classes

Equities

Equities are also known as stocks. When you buy a company's stock, you become a co-owner of that company and thus share in its profits and losses. Equities offer the highest returns of any asset class over the long term, but they also involve high levels of risk.

Funds and ETFs

An investment fund (also called a mutual fund or unit trust) collects money from a large number of investors and places it in a diversified portfolio of investments such as equities and bonds. Spreading the investments smooths out the risks attached to individual securities, making funds a safer bet. Most funds are actively managed by a fund manager or a committee of experts, i.e. there are people who are responsible for selecting the investments in the portfolio and receive a fee for their services.

Exchange-traded funds (ETFs) are so called because they're traded on an exchange just like stocks. They normally track an index – for example the SMI, which contains Switzerland's biggest stocks. This means that they more or less follow the ups and downs of that index. This index tracking is known as passive management and results in the fees charged by ETFs being much lower than those of actively managed conventional funds.

Bonds

Bonds are interest-bearing securities with a fixed term. When you buy a bond, you're effectively lending the issuer (which might be a company or a government) money under specific conditions. Bonds don't yield high returns, but they're less risky than equities.

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