If you want to invest in Switzerland, you will soon find out that you have a lot of choices when it comes to investing your money in this country. The variety of options is almost as big as the choice of cheese in a Swiss supermarket. With such a choice, you naturally ask yourself: where and how to invest my money? What is the risk of investing in Switzerland? And what option is the best for me?
All of this makes investing in Switzerland very complicated. This is why it is important to take time to understand your options first. Whether you want to invest your money in Swiss real estate, or you are interested in sustainable equities in Switzerland; whether you are looking for the best ETF investments in Switzerland, invest your money in funds or whether you are simply fundamentally interested in how to best invest in Switzerland: our detailed guide is designed to give you all the basics you need to help you decide how to invest in Switzerland successfully, in a way that’s right for you.
Let’s take a look!
When is the Right Time to Invest in Switzerland?
Before investing your money, you might ask yourself what time is right to get started. Is now a good time or should you wait until the economic situation has changed? Unfortunately, there is no right answer to this question. As an investor, you are always hoping for the lowest price when you decide to buy the stock or bond of your choice. Experts are looking closely at every movement of the market and they are making forecasts that you can use as a support to make up your mind – but even their prognosis can be wrong. For example: In the early 2000s, everyone believed that internet companies like Google or Amazon would be an insecure investment. Anyone who didn’t listen to the opinion of the experts and invested in Google stocks in 2004 turned out to be a self-made millionaire 15 years later. Of course, picking the next winning stock can be like throwing darts with your eyes closed. This is why we at Yova always recommend diversifying your investments across a variety of companies, industries and regions. Remember: Time is the antidote of volatility!
Chose the right time for yourself
Not only should you base your investment decisions on the state of the market, but also evaluate your own personal circumstances. It is important to understand that your money may be unavailable for a long period of time. If this leads to sleepless nights and makes you worried how to pay your bills, think again whether it is the right time for you to commit to an investment. For example, if you decide to invest in the stock market, you’ll need a minimum amount of CHF 2,000 for a diverse investment. You want to be sure that you won’t need that amount for at least the next five years. If you don’t feel comfortable with investing your money for such a long time, it might not be the right time for you. Another important thing to know is that you are never too young to start investing. Even if you start your investment with a small amount, you’ll see that compound interest adds up over time and has a huge impact on a person’s wealth. No matter what your age is, more important is to know what you are hoping to get from your investment.
For example, even by the age of 40, you can start investing your money to save up for your retirement. Your investment horizon is still up to 25 years and based on our experience and the historical performance, you can expect to make an average return of 6% per year. The most important thing is that you take your money out of your bank account and get started. Leaving your money in your bank account that offers an interest rate of 0.01% will mean that your savings lose value over time. The reason for that is that prices increase faster than the return you’ll get from your money in your savings account. Bear that in mind when thinking about investing. We are happy to help you with creating your individual investment strategy.
Different Investment Options in Switzerland
Before you start investing, you need to know what you want to invest in. Real estate, Gold, Silver, Stocks, Bonds, ETFs? All these options are covered in this article. For a good measure, we’re also going to discuss the pros and cons of keeping your money in your bank account – since this is what many people do by default. What’s the best way to invest in Switzerland? Jump to the end of this post to find out what we think.
Invest your Money in Gold and Silver
People have been investing in precious metals since ancient times, and this remains popular amongst wealthy individuals looking for a protection from inflation, deflation, and hyperinflation. Gold and silver are widely known as a good option for a safe investment with a relatively low risk of losing money.
- Longevity: Gold and silver have held an underlying value throughout history.
- Safety: Physical bullion is considered safer than the ‘paper market’ of gold and silver.
- Cost: Safe storage and insurance costs need to be considered.
- No real return: Precious metals don’t have a real return. They don’t create anything new or better. Their return hinges simply on hopes for a price increase.
- Impact on people and the planet: Mining gold and silver often takes place under conditions that are harmful.
Invest your Money in Investment Funds
Before investing in investment funds, you need to understand what they are. A fund is a collective investment where your money is pooled together with the money from other investors and actively managed on your behalf. A fund manager and a high number of other intermediaries are involved in your investment and make buy/sell decisions for you. There are so many types of investment funds that we could create a series of articles just about that. But, here are the most important pros and cons of investment funds.
- Diversification: Investment risk is spread across a pool of individual investments, which minimises the risk of losing money.
- Liquidity: Many funds (but not all) allow you to withdraw your money and claim it back within a few days.
- Returns: As Warren Buffett famously illustrated, passively managed funds can outperform actively managed funds.
- Hidden fees: Due to their complex and layered structures, funds are notoriously known for hidden fees. Recent investigations uncovered that funds can cost up to four times higher than what you initially thought.
- Questionable sustainability: When investing in funds, you cannot completely control what exactly you are investing in. Instead, you delegate your buy/sell decisions to the fund manager. And even “sustainable” funds are often quite not-so-sustainable at a closer look.
Invest your Money in Stocks
Buying stocks gives you an opportunity to participate in a company’s success. A stock turns you into a co-owner of the company you invest in. Thanks to digitalisation, the stock market has become easier and more cost-effective for small investors.
- Returns: Attractive in the long-term – averaging 6% return per year.
- Liquidity: You can sell your stocks and have the money in your account within a few days.
- Simplicity: Unlike derivatives and funds, there are no complex layers between you and your investment. When you buy stock, you own a part of that company.
- Full transparency & control: You invest in each individual company and can, therefore, control exactly which companies you support with your money.
- Sustainability: Due to this control, you can exclude companies or topics that you do not wish to support (e.g. weapons or climate change).
- Volatility: Stock value moves up and down on a daily basis. Therefore, it is important to have a big variety of different stocks in your portfolio to minimise the risk of your investment.
- Risky short-term investments: Due to the volatility it is not recommended to invest into stocks for a short-time only. We recommend holding your stocks for at least five years.
Invest your Money in Bonds
Do you want to know how you can invest in Switzerland safely and what interest you can expect? One possibility is to invest in government bonds or corporate bonds. Briefly explained, bonds are debt obligations. You effectively ‘loan’ a company or government money, and they agree to pay you back (plus interest) within a fixed timeframe. The difference between a loan and a bond is that you can sell and buy bonds on financial markets. If you sell your bond, then the buyer will get all future interest payments as well as the final repayment of the initial sum loaned.
- Volatility: Typically, bonds are rather steady and have fewer ‘up and down’ movements than other investments.
- Low Risk: It depends on who issued the bond. Investment in Switzerland, in particular in Swiss government bonds are typically considered low risk, as Switzerland has a strong track record of paying its debts.
- Difficulty: Usually bonds have long holding periods and large minimum investments. You can get around the ‘difficulty’ point by buying shares in a bond ETF, which bundles many bonds together into a fund.
- Returns: Bonds currently have very low returns.
Invest your Money in ETFs (Exchange Traded Funds)
Exchange Traded Funds have recently exploded in popularity and many investors are looking to find the best opportunity for ETF investments in Switzerland. ETFs are usually designed to track an index like the S&P 500.
- Diversification: Many ETFs are built to have a comparatively high level of diversification.
- Ownership: You own a share in a financial structure, not the company’s stocks themselves.
- Cost: As they are passively managed, ETFs are much cheaper than traditional funds.
- Complexity: Sometimes fund managers buy ‘warrants’ and ‘equity swaps’ instead of the stocks. This is called a ‘synthetic replication’ and can turn an ETF into a highly complex structure with risks that are difficult to assess.
- Sustainability: Unfortunately, this is the same story as mentioned earlier with funds. When investing in ETFs, you cannot include or exclude specific companies in your portfolio. Be aware that sustainable ETFs are often a lot less sustainable than they claim.
Invest your Money in Real Estate
With rent prices on the rise, it is not surprising that a lot of people in Switzerland are thinking about investing in their own property. But there are some important considerations to make. To give you a heads-up: In general, it is better to buy a house for yourself than treat it as an investment. As it has become very expensive during the last few years to buy your own property, the return from real estate investment in Switzerland is quite low.
- Low volatility: House prices are generally stable in Switzerland, although they have dropped in the last two years.
- Illiquidity: If you want to sell your investment, you will need to find a buyer. This can take months or years, in extreme cases.
- Costs of living: If you live in your real estate you can save a lot of money on rent. In that way, you won’t get a high return – but at least you know that you will always have a house that is owned by you.
- High costs: Property is expensive in Switzerland (average is CHF 6,900 per square meter) and a large deposit is required. Don’t forget the agent’s commission, marketing costs and, real estate transfer tax, too.
- Taxes: Depending on your form of financing, real estate investment in Switzerland can be a tax hassle due to the taxation of the imputed rental value (“Eigenmietwert” in Switzerland).
- High risk due to leverage: If you finance a real estate investment with 20% of your own money and the real estate value goes down by 20%, your money is gone. But, you still need to repay the bank at a higher price.This can happen, as numerous real estate crises have shown in the past.
- Lack of diversification: Buying a house will require a majority of your money. Therefore, you won’t get the chance to buy other investments that could help you survive a real estate crisis.
- Hassle-factor: If you are planning on renting the real estate out, you will have to take care of property maintenance and managing tenants. Don’t underestimate the amount of time and money it takes to look after a house.
- Low returns: Swiss real estate has become so expensive that the relation between purchasing price and imputed rental value is often below 5%. Considering the risk involved, that’s not all too high.
Invest your Money in Cryptocurrencies
Are cryptocurrencies such as Bitcoins, Ether, XPR, Bitfinex or the new Facebook-currency Libra a hype that we should ignore or is it the investment of the future? At the moment, it is really hard to judge, as some people became millionaires investing in cryptocurrency, many others have lost their life savings. Overall, it’s an interesting space to watch, but this is a new frontier – a bit like the Wild West in the 1800s!
- Easy: Transactions are easy and fast, especially because there are few regulatory constraints around them.
- Cool technology: Decentralised networks are an interesting alternative to traditional banking models, as it increases security.
- Instability: While social, economic and political instability can harm the stock market, the opposite seems to be true for cryptocurrency.
- High volatility: The cryptocurrency market is a bit like a rollercoaster!
- No real return: Like precious metals, cryptocurrencies don’t have a real return, but are only a bet on price increases.
Invest your Money in your Bank Savings Account
Strictly speaking, putting money into your bank savings account is not investing! But we wanted to mention this option since many people default to keeping their life savings in their bank account.
- Guarantees: If your bank goes bankrupt, you’re covered for up to CHF 100,000.
- Access: If you need your money in the next year or two, keeping it in the bank account is a great idea.
- Negative returns: Typically, a Swiss bank pays 0.01% interest. Prices in the real world grow a lot quicker, which means that you end up losing wealth.
- Hidden costs: Banks are masters in disguising fees. So make sure you know what you’re paying for in your bank’s savings account.
So, what is the best way to invest your money in Switzerland?
At Yova, we believe the best approach to invest is to create a diversified portfolio of 30-40 company stocks, spread across different countries and industries. Depending on your age, the length of time you want to invest for, and other factors, we typically recommend putting a portion of your investment into government bonds. But what about the strongest argument against stocks – what if the companies you invest in crash and burn down? That’s a great point!
Long-term Investments and Diversification
In February last year, the Dow Jones experienced its biggest one-day drop in history. Our advice to investors was to hold steady and not sell their stocks in a panic. These market fluctuations are to be expected – we account for these happening. Sure enough, the market had returned to previous levels within a couple of weeks. So not all crashes spell disaster. Especially not for investors who are in it for the long run. This is why we advise our clients to leave their money for a period of at least five years. Market fluctuations, highs and lows are all perfectly normal. They only affect you if you are looking for a quick buck. These situations also show us why diversification is so important – although some crises are felt across the worldwide economy, it’s more often concentrated on a particular industry or region. Imagine if 100% of your investment was in the technology companies right before the Dot Com Bubble burst, or 100% in the Brazilian stocks before it entered its recent recession. Spreading your investment means you won’t be wiped out by these downturns. This brings us to a common question our customers ask us:
Should I Invest in Swiss Stocks or Foreign Stocks?
We all know that Switzerland is one of the world’s safest places for investors. Swiss investment banking is powered by the country’s strong economy, low inflation, low national debt, and low unemployment rate. Before you commit and invest in Switzerland and its companies, remember that this “safe haven” status brings a few downsides, as well. During a crisis, foreign and local investors alike jump at the chance to invest in Switzerland. This means that the Swiss Franc and stock markets can quickly become overvalued. And this is not just a doomsday scenario powered by imagination. A situation like this happened back in 2012, when the Swiss Central Bank took the most dramatic action in its history: they tied the Franc’s value to that of the Euro to make sure its rise was curbed. To answer the question that brought us here: Yes, you should invest in Swiss companies, but also in foreign ones. At Yova, we recommend investors to hold a portion of their investment in Swiss stocks, but also buy stocks from around Europe and America to achieve diversity. This prevents the investment from being unnecessarily exposed to risks in one single country.
That brings us to another common question:
How much Money Do I Need to invest?
When it comes to investing in the stock market, there is no one-size-fits-all. You can start small or go as big as you can. Most people assume you need to be rich to start investing. That’s completely wrong! To start investing in Switzerland, we recommend a minimum investment of CHF 2,000 for stocks. This is generally the amount you need to buy a variety of different stocks and achieve a good diversification. When you invest small amounts of money, one common mistake is to put them all in one place. After all, why divide a small amount? Actually, it’s better to invest in 30-40 local and foreign companies. This gives you good diversification, which means you can expect your investment to grow at around the same rate as the market (historically, this has been 6% per year).
How to Start Investing
Don’t worry, we’ve gone to great lengths to make it easy for you to start investing. Get your free investment strategy and customise it by picking your investment themes and personal risk profile. As soon as you are satisfied with your individual portfolio, you can start opening your account. That’s it! After you transfer your investment sum into your trading account, we take care of all the technical details on your behalf. This includes monitoring your investment, annual rebalancing, and the fulfilment of shareholder obligations (if you don’t want to do these yourself).
Key Points to Remember about Investments in Switzerland
To sum it up, we want to remind you of the most important points of this article. This will help you to keep an overview of all the investment opportunities in Switzerland.
- Information is important: Different ways to invest have different pros and cons. Always consider the risk and expected return but also take note on whether you can access your money when you need it.
- Invest in the stock market: Stocks are an attractive option because they allow you to diversify your investment. You can start with small amounts and you can withdraw your investment easily if you need to.
- Sustainable investment: Invest in the topics that are important to you. Sustainability is a growing concern for most investors and stock investments make sustainable investing easy. Unlike for other investments like funds or ETFs you can control what you invest in. This way you ensure to only support companies and topics that you want to support.
- Diversification brings stability: Depending on your financial objectives, consider splitting your investment between stocks and bonds. Bonds provide more day-to-day stability .
- Start with CHF 2,000: A good base for this type of investment in Switzerland is CHF 2,000 – this is the amount you need to diversify your portfolio.
Using our online tool, you can easily pick the sustainable and socially responsible investment themes that are most important to you. We show you exactly what stocks we recommend you to invest in. You can also adjust your financial goals and risk preferences. With every adjustment you make, our algorithm makes sure your portfolio is financially sound. This way, you can control where your money goes – without compromising your returns.
Do you have any questions? Drop us a message. We are always happy to help you!