The right investment strategy
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Why Swisscanto pillar 3a investment products are a smart alternative to pure pillar 3a account assets, even in the current climate.
Why Swisscanto pillar 3a investment products are a smart alternative to pure pillar 3a account assets.
Investing is the new saving. Especially for retirement planning.
Are you ready and willing to benefit from the advantages of pillar 3a or vested benefits? The only question now is which solution you should choose. Of course you can park your savings in a pension bank account. But in the current environment, depending on the provider, these are only paying low interest rates of 0.72% per year (status July 2023) on average. You even lose purchasing power because this interest does not even compensate for inflation. This means that what you have will effectively be worth less in the future than it is worth today.
But what would be a good alternative?
The answer is simple: saving with securities.
What makes securities better?
The advantage of saving with securities is that your money is not simply left in a retirement savings account, it performs in line with the financial markets. This is because with this solution, your third pillar or vested benefits consists of collective investments, which, depending on your investment strategy, invest mainly in equities, real estate or bonds. These are broadly diversified in order to protect your retirement savings.
Securities can generate more income over the years, because they allow you to benefit from the opportunities for returns on the financial markets. This is a significantly higher potential return than the interest on a normal Saving account (3a or vested benefit bank account).
Explained by Christoph Schenk, CIO Zürcher Kantonalbank
Why it pays off to save with securities
When investing in securities, you benefit from higher potential returns compared to a 3a savings account. A glance at history shows that crises are usually followed by longer periods of recovery and upswing. Pillar 3a also allows you to build up wealth for your retirement over the long term.
Please note: Past performance and returns are no guarantee of future investment performance. Bear in mind that the performance data does not take fees into account.
Our tip:
- Bear your investment horizon in mind. The longer it is, the more risk you can take, because it is more likely that any price drops will be made up again.
- The older you are, the less risk you should take.
If perhaps you are getting close to retirement age or don’t want to take the risk of saving in securities, you can also simply keep your frankly pillar 3a assets in cash.
Let’s say you’re Max, 35 years old and in employment:
The possible savings with securities are much more than just a few hundred francs.
Max, for example, is 35 years old and in employment. In future, he will pay CHF 6,000 each year into his pillar 3a account at frankly and he selects an investment product with an equity component of 45%. He transfers an additional CHF 50,000 from his former pillar 3a to frankly.
If he were to leave his money in his original normal 3a account, in 30 years’ time and assuming interest rates remain low at 0.50%, he would have CHF 252,719.
If he were to save in securities, however, with a theoretically assumed return of 3.7% this could be CHF 491,100. That’s quite a difference, isn’t it? And if you are not Max, you can use the pension calculator* to conveniently simulate how much extra money you could save up.
Assumption
Assumption
Equity component 45%, expected return per year 3.7% (net after costs). Saving with securities is subject to fluctuations, the expected return cannot be guaranteed and tax effects are not included in this forecast.
But is it really a smart idea to invest in equities?
Prices can fall too, like we saw in March. It’s true that the markets are always moving, and of course prices do fall once in a while, as we saw with the coronavirus crisis. But the point of pillar 3a is not to make a quick profit, it’s to build up long-term assets for your old age. This means you can sit tight and wait out crises.
A glance at history shows that crises are usually followed by longer periods of recovery and upswing. So thanks to your long-term investment, securities offer you the prospect of higher potential income than a pillar 3a bank account, where interest rates are likely to remain very low for a long time.
