Investing money in Switzerland: How to get started

How long have you put off doing something smart with your money? 🤔

Investing money can be overwhelming. Don’t you need a finance degree to get it right? No, you really don’t. You actually should invest money now to make sure you have more money in the future. But you probably already know that, because you ended up reading this blog post.

Let’s silence this nagging feeling in the back of your mind: In this guide, you will learn everything you need to know to get started with investing today, and we will answer all of your most burning questions.

How much should you invest?

Let’s split this question into two parts. How much of your existing savings you should invest, and how much of your monthly income you should put to good use for your future. 

a. How much of your existing savings should you invest?

Before you start to invest, it is important to two things in mind. Keep a cash buffer and think about your future spendings.

The cash buffer

Life is pretty unpredictable. It is essential to keep cash on the sideline which you can use for all kinds of unexpected events and rainy days. You want to make sure, you don’t have to touch your investments out of the blue – when your car breaks down, when you lose your job, or when you move, you want to have enough cash to cover these costs.

Usually that would amount to around 4-6 times of your typical monthly spendings.

Planned spendings

Do you have big financial plans for the next 1-3 years? If so, save that money in cash – this time frame is too short to rely on investments. This could be a downpayment for a house, a one-month trip to Alaska, or a car purchase. Keep this in mind. 

Do you have money left after deducting your cash buffer and planned spendings? You should definitely start to invest then! 👉You will learn how you get started later on.

b. How much of your monthly savings should you invest.

In order to find out how much of your monthly income you should invest, we can look at the often quoted 50/20/30 rule.

The rule helps you split your monthly income into categories. 

50% for needs = Fixed costs (anything from your rent to groceries & insurances).

20% for savings = the money for your retirement, a house or investing.

30% for living the life = the little fun extras: 3rd pair of running shoes & fancy barista coffee

This rule might not be the perfect fit for every lifestyle, but it is definitely a good rule of thumb! 

How should you invest?

When looking at the question of how you should invest, it is important to take a look at the amount of “risk” you want and can take. But what’s risk in the investment world?

Risk is very individual! When you have exactly 2’000 CHF to invest, investing everything in crypto currencies is a very risky choice. If you are investing 2’000’000 CHF in total, the risk factor of 2’000 CHF in crypto currencies is definitely smaller. 😅

Risk is a mix of:

… how your personal financial life and plans look like

… how your personal attitude towards risk is set

Therefore, the “perfect investment” that fits everyone, does not exist. 

Each financial situation and attitude towards risk is different, and how you invest your money should reflect this combination.

In financial lingo “risk” means how much the value of your investments might fluctuate in the future. Normally, the higher the risk, the higher the fluctuations. But in the long-term higher risk should also be rewarded by higher returns.

The most common mistake made by new investors is that they choose the wrong risk. 

If you plan to invest, it is essential that you are aware of the risk involved. As each investment option comes with a different risk level, we will take a close look at the most important options.

Do you want to find out how much risk you can take?

One way to do so is to chat with Selma, your personal financial assistant.

Most common investment options in Switzerland

a. Investing in stocks: high risk

When you buy stocks, you buy a small piece of a company. If the company becomes successful, also your shares’ value will most likely increase. However, if you only invest in one company or few companies, you are betting on these to succeed in the future. Therefore, investing in stocks is risky.

The more different companies you invest in, the less is the overall risk of your portfolio.

b. Investing in bonds: low risk

When you buy bonds you loan a company or a government money. In return, they promise to pay you back the money – with interest. 

This might sound less exciting than buying stocks from your favorite company, but usually “boring is less risky”. 

c. Investing in precious metals: low risk

Gold might be the most classical investment option and is widely used among investors to protect their wealth from inflation. However, gold does not have a real return! Gold does not create any new value, thus if you invest in gold, you simply hope for a price increase in the future that equals out inflation.

d. Investing in ETFs: medium risk

Exchange traded funds, ETFs, are very popular nowadays, as you can easily invest in a whole market using one investment product. As an example: The iShares SMI CH depicts the Swiss market. It includes the 20 biggest publicly traded companies in Switzerland and allows you to invest in all of them. 

ETFs are a great and affordable way to spread your investments = decreasing the risk by investing in many things at once.

e. Investing in real estate: medium risk

Buying a real estate investment sounds tempting, but as an investment option it is very tricky. First, real estate is very expensive in Switzerland. If you can afford real estate, most likely a majority of your money is required. 

This means you end up with most of your money tied up in one investment product. It’s also difficult to get the money out when needed (you need to find a buyer, etc.). 

f. Investing in crypto currencies: high risk

Nothing is as trendy as investing in crypto currencies such as Bitcoin, Ether or (maybe at some point) Facebook’s new Libra. It is impossible to predict how crypto currencies will develop in the future. Following the historical developments we know how they spiked in value and dropped massively on and off! These huge ups and downs make them a very risky investment. 

Many people became millionaires off crypto currencies, others lost their life savings.

What options do you have to get started?

Now that you learned how much you should invest and the risk of different kinds of investments, it is time to talk about “the execution”. Basically, there are three main options to choose from.

You can invest

1. with a bank
2. with a robo-advisor
3. with a broker

a. Investing with a bank – offline, expensive

The most common way for Swiss residents still is to invest with a local bank. Banks offer a wide variety of different investment options for all kinds of risk profiles. At some banks you also have the option to pick individual stocks. 

It is a very easy and comfortable way to start investing, especially since your bank advisor does all the work for you. They will also manage your money – buy and sell based on your set plan.

The downside is already very clear: the expensive fees and hidden costs. It is always important to keep an eye on the small print.

b. Investing with a robo-advisor – little work, fair prices

Robo-advisors are still a fairly new way to invest in Switzerland. Simply put, a robo-advisor is an online investment service that uses algorithms to create an investment plan and manages it for you. 

Robo-advisors are already widely used in America and are gaining in popularity in Europe. Through the automatisation of processes banks cannot compete with the price of a robo-advisor. 

The typical robo-advisor offers a few different “risk options” ranging from “low risk” to “high risk”. You have to choose which risk profile fits best to you, everything else will happen on autopilot.

c. Investing with a broker – lots of work, low prices

This is for the “DIY” personalities out there. If you want to dig deep into the financial world and take full control, you can use a broker to invest. This is merely a platform that enables you to buy any kind of products you like.

It is up to you which stocks or ETFs, bonds or precious metals you’d like to buy.

Choose a broker if you:

• have a clear view of what you should invest in
• want to spend time on choosing the best products
• enjoy learning a new (financial) “language” 😅

d. Investing with Selma – low work, fair price

Selma combines the world of a robo-advisor and a private banker.

In a short chat Selma analyses your financial situation, risk level and investment goals to create your personal investment plan. The investment products used at Selma are the afore-mentioned ETFs. ETFs allow you to invest in many different companies & products around the world – starting with a sum of only 2’000 CHF.

The moment you start to invest Selma gets to work for you and keeps your investments balanced with the financial market and your financial life. Like a robo-advisor, she will keep an eye on the market 24/7, like a private banker she will keep an eye on your financial life.

Should you invest now? 

Usually, the answer is: Yes, if… 

1. You are financially stable
2. You are keeping a cash buffer for rainy days
3. You can commit money long-term
4. You are mentally prepared for a rollercoaster ride 🎢

Is there a right time to get started? No, if you invest long-term – meaning at least 5-10  years, preferably longer the day you start is not important. Even though people often point to “times after a crisis” as the best time to invest, this is easier to say in hindsight – but can usually not be predicted. Furthermore, if you invest in regular intervals (like every month), you lower the chance of having started on an “expensive” day because you will get a more stable average price overall. 

Summary: The best tips to get started with investing in Switzerland

1. Invest only money you can leave invested for a long time
2. Be aware of your personal risk profile
3. Lower your risk by investing in many things at once & investing long-term 
4. Choose the right provider for your needs
5. There is no “perfect day” to start

Do you have more questions? Let us know, we will happily improve this blog post and add more information. You can reach us online, in live chat or via [email protected].