Saving On A Regular Basis
Whether you are saving for retirement, a deposit on your first home or even simply saving for a rainy day. There are two main strategies you can utilise to accumulate wealth throughout your professional career. You can either start saving on a regular basis by saving monthly or on a more ad hoc basis.
The most efficient way to accumulate wealth is to save on a regular basis as this is a very disciplined approach with many additional benefits.
By ensuring you pay yourself first each month no matter what, your savings will benefit from compounded growth.
The Power of Compound Interest shows how you can really put your money to work and watch it grow. When you earn interest on your savings, that interest then earns interest on itself and this amount is compounded monthly.
Example
If you saved 200 SFr each month, after 35 years, your savings would have only grown to 148,680 SFr at a three percent interest rate. At a six percent interest rate, it would have grown to 286,370 SFr.
The sooner you start to save, the greater the benefit of compound interest. This additional growth will allow you to achieve your financial goals sooner than anticipated.
Mitigating Risk
By saving monthly over the medium to long term you also mitigate risk while maximising your returns. Utilising time and a unit cost averaging investment strategy is the most effective way to save for your future.
With equity markets at all time highs, we are finding that our prospective clients are reluctant to invest. Of course we can understand why and it seems very reasonable to wait for the next so called crash. However, while we wait, we are missing out on potential returns and benefiting from 0% interest from our banks. Unfortunately, we do not know when the next market correction will be and it could be months or even years away.
So what is unit cost averaging?
Whilst this sounds complicated it simply means that if the market falls, then your regular fixed monthly investment will buy more shares, because the price of each share you are buying will be lower. In a rising market fewer shares will be purchased, but your existing shares will have gone up in value.
The fact more shares are purchased when the price is low and fewer when the price is high can result in the average share price paid being lower than the average share price over a period of a number of years. Should you wish to find out more you can access our WHITE PAPER BY CLICKING HERE
So how do you invest when equity markets are so high?
- Make sure you start saving right away. Guess what, the longer we put it off the less likely we are to start. We always have an excuse or what seems like a logical reason to wait. As you have seen, the longer you save for the your greater the benefits.
- Establish how much you can comfortably afford to save over the medium to long term.
- Select a diversified portfolio which is inline with your attitude to risk. Diversification is critical. This will allow you to mitigate risk even further by having exposure to multiple non correlating sectors.
- Regularly review your portfolio with your financial advisor to ensure your portfolio allocation is taking advantage of current market conditions.