Why do many opt for ETF savings plans?

ETF

Posted by MoneyController on 05.07.2024

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ETF savings plans combine an investment strategy typical of retail investors with a passive financial product: but what makes this combination attractive to many investors?

Growing interest in ETFs but also in ETF savings plans

Over the past few years, investor interest in passive funds, ETFs, has grown, as shown by the growth figures for the past two decades. The 'ExtraETF' portal recently noted an increase in the volume of savings plans in Germany. But what makes these financial products, namely savings plans that invest in a passive fund, so attractive to investors?

The advantages of an ETF savings plan

Picking up here on some considerations made by, among others, the 'ExtraETF' platform (in a factsheet dedicated to the subject), ETF savings plans combine some of the advantageous features of (a) the investment strategy and (b) the financial product: (a) the possibility of paying small amounts over time, the exploitation of compound interest and the minimisation of market timing errors; (b) the product's transparency, potential diversification and reduced costs compared to active management.

Low costs: an important strength

But what amount are we talking about when we read that investing in an ETF saves a significant portion of commission costs? Now, it is true that the cost can vary from fund to fund, just as it is always necessary to carefully evaluate the costs of each product you decide to subscribe to. Nonetheless, according to VZ VermögensZentrum investment expert Christian Tavasci, active investment funds can entail charges averaging between 1 and 2 per cent of the invested capital, whereas in the case of ETFs this is on average 0.5 per cent or less.

The risks of a PAC and an ETF

It should not be forgotten that ETF savings plans also present risks linked to the investment strategy and the product. Two examples: on the one hand, as 'SoldiOnline' points out, any declines in a savings plan that occur over the past few years are difficult to offset with new payouts; on the other hand, ETFs are subject to market volatility (and thus to changes in value), but they cannot rely on active strategies (which, typically, aim to beat the benchmark) to cope with this.

Read also:

What are ETFs and how do they work?

Regular savings accounts and savings plans: how do they work?

Will ETFs soon dominate the investment world?

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