Save successfully with low interest - It's that easy!

Put some money aside for the future without having to worry today – is that possible? After all, you never know what life will bring five or ten years down the line. “Yes, it’s possible”, says Birte Sewing, head of the ERGO investment product department – and names five key success factors for profitable saving in a low interest climate.

Two out of three German citizens consider long-term saving important. The low interest phase hasn't changed this in any way. The German domestic budget is currently a staggering 5,300 billion Euro. And it's going to continue to rise! But this type of saving is creating a change in our way of thinking: away from traditional investments like the savings account, in which the balance in the current low interest phase in now increasing more gradually as supermarket or petrol pump prices rise. And then there are the investment opportunities which the worldwide capital market offers: in the form of shares, bonds, raw materials or, better yet, investment funds which spread savers’ money over many various securities and thus offset exchange rate fluctuations.

15 percent of Germans already own investment shares, a tendency which is set to increase in future. And the longer the low interest phase continues, the more it becomes clear: Those looking for attractive opportunities on their returns can't get past investment funds. The main premise is that you don’t only invest one-off contributions, but also save on manageable monthly rates – such as with the good old savings account.

I urge investors who are already compounding their assets with small monthly contributions with a fund savings plan and who still wish to remain flexible to take the following five success factors to heart:

1. It's all in the mix

Unlike shareholders from individual companies whose investments are contingent upon the‎‏ success of individual companies, savers with equity funds participate in portfolios from many different companies with different business models and from different sectors and countries. More broadly positioned investment funds such as balanced funds or multi-asset funds spread the capital of those investing in these even more broadly and they invest not only in shares but also in other classes of investment such as bonds and raw materials. One of the most important pearls of market wisdom is not without reason: “Never put all your eggs in one basket!”

2. Experience pays off

Make sure that your investment fund is actively managed so that an experienced fund manager can continuously look for investment opportunities for you in promising sectors, companies and markets - and that the fund is continually oriented toward the current market conditions.

3. It's worth keeping at it

Fund savers remain flexible because the fund shares can be traded daily. I still recommend a minimum term of five, or better yet, ten years - and for two reasons: Firstly, the compound interest effect ensures that the gained earnings that are reinvested throughout the course of your fund can work for you in a way that is more profitable. And secondly, you won’t have to worry as much about periodic fluctuations in exchange rate the longer you stay invested. Let’s just take the German share index (DAX), which represents the 30 biggest companies on the German stock exchange: The average return on the DAX for a ten-year investment period is a steep 8.1 percent. Also, keep in mind our “return triangle” here - it shows you the average annual return for every investment period since 1965. You see: On average, investors were able to more than double their assets within ten years with the DAX. And one more tip on the right timing: Have your investment provider deposit your savings contribution right at the beginning of the month. As the Nobel Prize Laureate in Economics Richard Thaler recently discovered, “mental accounts” can in this way be psychologically significantly more easily managed.

4. The profit is in the purchase

Since the prices on the stock exchange fluctuate, with constant savings rates, some months you get more and others less investment shares for your money. Long-term-oriented investment savers can even gain something good from falling exchange rates: Your average purchase price per investment share decreases, which makes the long-term increase in exchange rate all the more attractive - attesting to the principle “buy low, sell high”. A further benefit: As an investment saver, you don’t need to worry about the right time to buy, since you buy at a low average exchange rate anyway.

5. Your employer and the government save as well

Whenever your employer pays out asset-creating contributions: direct this money to your investment savings plan as well - a lot helps a lot. If our employer pays out less than 40 Euro in asset-creating contributions within a year, the government advances your investment savings from the employee savings bonus, which you can of course put towards your investment fund plan.