Low interest rates make it difficult to invest your capital in a safe yet lucrative way. To many investors, ETF saving seems to be the perfect compromise - here's why.

In the past years, ETFs have become more and more popular among young investors. Yet, there are still knowledge gaps when it comes to what exactly ETFs are, how they work and whether they´re safe or not. In this article, you´ll learn important facts about exchange-traded funds, their functionality and how to use them as a provision for your future. Visit the website https://etf.capital/ to find even more information about ETFs and other financial investments.

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What Is an ETF Saving Plan?

ETFs are funds that are traded on the stock market. Investing in an ETF means investing in an entire index instead of just one stock and company. That causes broad diversification and therefore also a lower risk of loss: If single shares within the fund drop, yields of the other included shares can compensate for the loss. Overall, most ETFs perform really well, as their success is not bound to a single company or business branch.

ETFs as an Alternative to Conventional Saving Schemes

The past years have been coined by low interest rates on conventional savings in bank accounts and the like. That caused many investors to find lucrative alternatives that offered more safety than speculating with single stocks, cryptocurrencies and other volatile assets, but that was more lucrative than traditional saving schemes – a fine line. ETF saving plans have often been found to be the perfect compromise.

One-off Payment or Accumulation Plan?

Technically, there are two ways of filling an ETF with capital. Investors with a high amount of capital often choose to place a one-off payment towards the fund. Others decide to set up an accumulation plan, where they pay a certain amount of money towards the savings plan every few weeks or on a monthly basis. Some investors even do both to get the best out of each way.

Placing a one-off payment has the advantage that all your capital can start working for you right away, but it also has downsides to it: If you open your ETF during a bull market, you might get less shares than you would during poor performance. It really comes down to perfect timing. Experts believe that the war in Ukraine will cause prices to drop even further, which could generate a lucrative starting point for prospective investors.

When setting up a saving plan ETF, you can benefit from the so-called cost average effect. That means that you get more shares for your regular investment during periods of lower performance and less when prices are high. That causes your investment volume to grow and benefit even more when prices are low. Statistics show that one-off payments usually lead to higher yields in the long-run.

Where to Invest?

As exchange-traded funds mimic an index, there is a broad selection. When investing in an ETF plan, you´re not bound to stock shares. In fact, ETFs can be drawn from all kinds of different indexes – be they domestic or international. It's possible to invest in crypto ETFs, in resource funds, in precious metals or simply in different markets like the NASDAQ or the Dow Jones.

That allows you to choose the index, which you believe to perform best in the upcoming years. Right now, green ETFs are in demand. But that is just one of many examples. Before investing, make sure to grapple with the index, its past performance and its prognosis for the future.

How Long to Invest?

ETFs are long-term investments. That makes them less attractive for those who want to make as much money as possible within a short time period. As you invest in an index that grows slowly but steadily you should let the saving plan run for at least ten years – the longer, the better. Many people use ETFs as a form of private retirement provision. If you set up a plan during your studies, you may be able to benefit from it when looking to start a family.