How does investing work?
How do I invest correctly? We believe it’s easier than many people think. Find out here how you can successfully enter the world of investing. We’ll show you what to look out for, what opportunities and risks exist, and how to get started.
Why it pays to invest
Do you want the chance to increase your wealth and have you set yourself financial goals? Then you should consider investing in financial assets. Unlike traditional savings, investments in equities, bonds, real estate or funds offer potentially higher returns – especially in times of low interest rates. By leveraging compound interest and long-term growth, the capital invested can increase significantly over time, allowing important life goals to be achieved. These goals may include buying a house, paying for children’s education or planning for retirement.
Moreover, investing can help to counteract the effects of inflation. While the purchasing power of money in a savings account tends to decrease continuously due to inflation, carefully considered investments can maintain or even increase the value of capital. A diversified investment strategy can reduce risk and provides the opportunity to take advantage of various market opportunities.
These steps can help you invest correctly
- Set a clear goal before investing.
- Acquire information on the subject. The foundation for successful wealth building is thorough research on investment opportunities.
- Define the asset classes you wish to invest in. You can invest your money in equities, bonds or real estate, for example.
What do my investments cost?
If the value of your investment increases, the profit will not automatically end up in your account. Investments in securities are subject to fees. In the case of equities, transaction costs and custody fees are charged for each purchase and sale. For funds and ETFs, the costs for administration and other expenses are combined under the TER (total expense ratio). Foreign currency funds also include exchange rate surcharges.
Tip: These fees may reduce your investment performance. Therefore, check the fees carefully and compare different providers.
When should I start investing?
There is no perfect time to enter the world of investment. That also means there’s no “right moment” for you to miss. Firstly, you should start as early as possible and secondly, you should invest continuously. The longer you stay invested, the faster your assets usually grow. The secret behind this is the compound interest effect, which can lead to the exponential growth of your investment. You can accelerate this effect by investing continuously, for example CHF 100 each month.
How do I start investing?
You need a custody account with your bank or a specialised online platform to trade equities, bonds and other securities. This digital custody account holds your securities electronically and is linked to an account. This allows you to buy and sell securities and receive dividends and interest.
Six steps to entering the financial market
Step 1: Get informed and determine your savings potential
Step 1: Get informed and determine your savings potential
Beginners should seek as much information about investments as they can and learn the various options for building wealth. Before investing in equities or bonds, it is also worth comparing the returns and costs of the different providers. As a rule, past performance is no guarantee of future returns and investments in securities always involve risks.
Step 2: Define your goals and choose an investment strategy
Step 2: Define your goals and choose an investment strategy
Do you want to invest for retirement, financial freedom or to purchase residential property? There are many reasons to build wealth. The sooner you start, the faster you may reach your goal.
Beginners should develop a personal investment strategy for this purpose. The strategy specifies how much money should be invested over which period, what return you aim to achieve and what risk is acceptable. Those who want to gain initial experience should start with a smaller amount.
Step 3: Choose suitable asset classes
Step 3: Choose suitable asset classes
Investors have a wide range of investment categories at their disposal. Depending on the strategy and personal preferences, these can be combined. We’ll give you an overview of the most important types of investment:
- Equities offer attractive long-term potential returns.
- Bonds are more conservative investments with fixed-term maturities and annual interest.
- Funds reduce the risk of losses through diversification into individual securities.
- ETFs (exchange-traded funds) are generally passively managed funds that track an index or underlying instrument.
- Index funds and ETFs (exchange-traded funds) have many things in common, but there are also some important differences. Both are investment instruments that aim to replicate the performance of a particular market index, but they differ in their structure and how they are traded.
- Other asset classes: Real estate, commodities, money market instruments and cryptocurrencies
Step 4: Review risk diversification
Step 4: Review risk diversification
Risk diversification is crucial for building wealth. By spreading your money across different asset classes, you usually minimise the risk. For example, you could invest a portion in individual company equities and another portion in ETFs. Bonds are considered to be low-risk, while individual equities, funds and ETFs generally carry a higher risk.
Diversification is also possible within an asset class. Some equities are more risky than others, and funds and ETFs may have different risk profiles depending on the assets included.
Step 5: Invest money
Step 5: Invest money
Once you have chosen the asset classes, you can start investing.
To trade equities, bonds and other securities, you need a digital custody account with your bank that is linked to your account. It holds your securities electronically. You can then buy and sell securities and receive any dividends and interest.
Step 6: Regularly review your investment portfolio
Step 6: Regularly review your investment portfolio
Once the portfolio is composed of various asset classes and investment products, long-term capital accumulation begins. It is important to take time at least once a year to check your finances for the following questions.
- Are the investments still suitable for your personal needs?
- Have your own goals changed in the meantime?
- Do the investments still correspond to your personal risk/return profile?
- Are changes in the market having a major impact on your investment?
