Guest comment by Christoph Boschan in "Die Presse"
One of the long-term constants of recent history in peacetime is steady economic growth. Via free capital markets, anyone can participate in listed companies, the largest producers of this growth. However, fluctuations are commonplace. Since capital markets reflect expectations as well as intrinsic value, they fluctuate more than economic growth. These days, the corona virus is fueling many fears.
It is a big mistake to turn away from stocks because of short-term, albeit serious, fluctuations.
After all, with the right strategy, namely investment instead of speculation, the risk is much lower than the risk portrayed in the media. Phases of declines are rarer and shorter in stock markets than upsurges. Capital markets naturally reflect economic growth. Simple investment principles minimise the fluctuations considerably and free investors from the need to catch the right moment and make the right choice of stocks.
What should I buy? A mix of European, Asian and American, long-established, large companies that pay dividends.
How do I buy such securities? Via funds that relate to the regions and companies mentioned, most simply in the form of a "world fund".
When should I buy? Regularly in the form of a savings plan with monthly amounts (about EUR 100 or EUR 200). With smaller monthly amounts, investors can buy two or four times a year. In this way, investors don’t put all their eggs in one basket at one time. This reduces the return, but provides stability. You rule out the bad luck of investing everything at the highest price.
Take the worst conceivable starting point in our national index ATX. Even if you started to invest at the ATX all-time high in July 2007, this strategy has prevented you from sitting on a loss – unlike most media throughout the country reports. Investors who have been investing EUR 100 per month since then have turned EUR 14,800 into EUR 21,300 (before fees) by the end of January. Investors who have been investing since the peak of the dotcom bubble doubled their invested capital. It is precisely when there are declines – as can be currently seen – that the cost-average-effect of savings plans unfolds its full effect.
The currently realistic target return according to the above investment principles is on average seven percent per year. A stronger increase in value is always accompanied by increased risk, a lower increase means wasted returns.
What else is important? Absolutely pay attention to the fees. A one percent lower yield causes a yield loss of more than EUR 50,000 at a monthly investment rate of EUR 100 over 40 years!
In the long run, this investment strategy is the safest. If the strategy presented here does not work, all other sources of income will dry up. All wages, pensions and social benefits come from the same source: successful companies! Anyone who does not follow the logic presented here will question the sustainability of all sources of income. But: those who believe in the sustainability of wages, pensions and social benefits - and thus indirectly in prospering companies – have the chance to profit disproportionately from economic growth via the stock market.
This article first appeared in "Die Presse" on 29 February 2020
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.