Want more, achieve more

Win the lottery? That would be great. Or inherit a six-figure sum from an American uncle? Who wouldn't want that?

But very few of us will ever be so lucky. That's why, if we want to secure our financial future, we have to make an effort ourselves. In other words, save.

Something for the future

Economists define saving as deferred consumption. That's true. We save so that we can afford something special later on, such as an education or a car. Or we put money aside as a reserve. Either way, saving is linked to the future. In other words, we intend to use the money in a few years' time.

The money box has evolved into the savings account. But anyone who remembers higher interest rates on savings accounts is probably quite old. Those who calculate in Swiss francs must accept that savings interest rates have been below 1% for over 20 years.

This is not a vote against savings accounts. Not at all. It's just that the value of your savings is constantly being eaten away by inflation. That may sound abstract. Let's put it in concrete terms: a purchase that cost CHF 100 five years ago would now cost CHF 107. Anyone who doesn't have at least CHF 7 more in their pocket than they did five years ago has less purchasing power.

Investing money therefore provides an opportunity to preserve value and build up wealth. However, anyone who thinks that investing is all about thrills, high-risk bets and substantial profits within a short timeframe is mistaken. On the contrary. Investing is more like gardening. A newly sown lawn will only grow if you tend it properly. Pulling on the grass won't make it grow any faster. It takes time. If you want your wealth to grow, it's best not to spend any of it.

Yes, there is risk, but...

The obvious objection is 100% correct: investing does involve risk. Even with safer bonds. When we lend money to a government or company, we expect the agreed interest to be paid on time. We also expect the borrowed amount to be repaid in full.

The same applies to riskier shares. Here, we expect companies to grow and the share price to rise. As an added bonus, there are often dividends. The same applies to all other forms of investment. The key is to spread these risks. If you only owned one share, the value of your securities portfolio would depend entirely on that one share. If you own ten shares, however, the situation looks much better. Adding more investments with different characteristics will result in a good portfolio.

Investors who take this approach will be rewarded. Not by the bank, but by the effect of compound interest. If you earn 1% interest every year, your invested capital will double in 70 years. At 4%, it will take just 18 years.

So why invest? To get more out of your savings. To treat yourself to something special or to have more at your disposal in your old age. If you are interested in investing and want to learn more about the financial market and how it works, this monthly column is just right for you. 

Legal notice: You can find the legally required information on financial analyses at https://www.vpbank.com/en/legal-notice.