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Investing money – how does it work?

You can decide what to do with every franc you earn: spend it, put it aside, or maybe invest it.

You obviously have to spend some of your income, whether you like it or not – whether for rent, food, insurance policies or other expenses incurred each month. You should also regularly set a certain amount aside for saving. You can find out more about how to save for short-term goals (like holidays, a new car or a course of study, or for unforeseen costs) in the chapter “How much money can I invest? The budget check”. It’s nevertheless worth investing money that you don’t need for day-to-day expenses or short-term dreams – this will allow you to get more from your money.

High return usually entails greater risk

Investors expect to see their assets grow. This is known as return  The overall performance of an investment compared to the capital you as an investor have invested in it.. To generate this return, you can invest either in shares, bonds, funds or other securities. We explain the various investment options available in the chapter “Securities – how to invest your money on the stock exchange”. We’d firstly like to give you an insight into the fundamental principles of investment.

In an ideal scenario, investors expect their investment to generate higher returns than the interest that they’d receive from their savings account. Why? This is where the element of risk comes into play: the probability of getting back the money paid into a savings account is very high. You only assume a low level of risk by paying into it. In contrast, various risk classes exist when investing – the risk class ultimately determines potential return. The following four principles are worth bearing in mind when investing:

• The higher the return on an investment – in other words, the anticipated yield – the greater the risk, and vice versa. Our explanatory video “magical triangle” shows how the goals of return and security contend with one another.
• We can, for example, reduce risk by distributing money across several investment instruments and various regions and economic sectors – in other words through diversification  The term diversification comes from economics. In the financial sector, it refers to spreading capital as widely as possible across different markets, sectors, currency areas and securities. The aim of diversification is to reduce risks.. With funds, for example, you invest your money in various shares, bonds and the money market. This means the return and the risk are not dependent on the performance of a single company or sector of the economy.
• If you decide to only invest your money in the short term, you should assume low to zero risk. A longer investment horizon  Your investment horizon is the period over which you wish to invest. This means you have to consider how long you wish to invest your money for and the period of time during which you will not need it for other things. For example, if you are planning to take a training course or a major trip in four years’ time – for which you need the money – this may determine your investment horizon. allows you to assume a higher level of risk – depending on your risk appetite. This is because the value of the investment can recover from short-term downturns.
• Generally, the sooner you wish to have access to the capital invested, the lower the anticipated return will be. If the money is tied up long-term, the expected return will also be higher.

Six questions before making your first financial investment

To avoid sleepless nights as a new investor, you should consider the following questions before investing – ideally with your customer advisor.

Question 1: How much money can I invest?

Regular investments can be made, starting with small amounts of money. However, you must ensure that you will not need this money in the near future. In the next chapter, “How much money can I invest? The budget check”, we help you to work out how much money you have left over to invest.

Question 2: When will I need the money again?

Investment can be made based on various objectives and time horizons – short-term, medium-term or long-term. Your time horizon has a direct impact on the composition of your securities portfolio. We explain this in greater depth in the article “Why long-term investment is important”.

Question 3: How much risk can I assume?

Risk capacity  Risk capacity is determined based on your personal and financial situation. For this reason, your advisor will ask you questions about your current personal and professional situation, your income, your savings, your financial commitments and your plans for the future. Your risk capacity is greater if you are less dependent on the capital invested. is determined based on your personal financial situation. For this reason, your customer advisor will ask you questions about your current personal and professional situation, your annual income, your savings, your financial commitments and your plans for the future. Risk capacity provides information on how heavily you’re dependent on the capital invested. This means that if you have savings that you won’t need for daily living expenses in the near future, your risk capacity is greater. However, if you have children, your risk capacity may be lower, as you have less disposable income.

Question 4: How much risk do I want to assume?

Your risk appetite  Your risk appetite is determined based on your personal attitude towards risk and opportunity. In contrast to the assessment of risk capacity, which is based on objective criteria, risk appetite depends heavily on your personality and attitude. Risk appetite therefore tends to be determined more by emotional factors. is determined on the basis of your personal attitude and feelings about risk and opportunity. In contrast to the assessment of risk capacity, which is based on objective criteria, risk appetite depends heavily on your personality and attitude. If you’re willing to assume greater risks to generate higher return, your risk appetite increases. In contrast, if you only wish to assume a low level of risk and, in turn, are willing to relinquish higher return, your risk appetite is lower.

Question 5: What combination of investments is best suited to me?

The type of investment best suited to you and your needs depends on how much risk you can and wish to assume – as mentioned in questions 3 and 4 – but also on the length of your investment horizon. This information is used to create an investor profile. This in turn forms the basis for deciding on the investment instruments you’d ideally like to put your money into. Bonds  A bond is a security that generates interest for investors. In addition to entitlement to payment of the agreed interest, bond holders – the creditors – also have the right to repayment of their capital. A government bond is issued by a state. The state, the Swiss Confederation for example, is the issuer of the bond and therefore also the debtor., for example, are a good option for very cautious investors with a short-term investment horizon. Investors willing to take greater risks with a long-term investment horizon can invest more heavily in shares  A share is a security which gives investors a stake in a company. Companies raise capital by issuing shares. Shareholders have proprietary rights (e.g. entitlement to dividends) and membership rights (e.g. entitlement to take part in the general meeting and the right to vote).. Various investment instruments are often combined to diversify the portfolio.

Question 6: How intensively do I wish to focus on my financial investment?

As a general principle, don’t invest in anything that you don’t know about. Financial investment is straightforward and does not require a long period of training. There is no need for complex formulas or to study share prices on a daily basis. The basic investment opportunities are open to all investors seeking to get more from their money. In contrast, complex investment products require a certain amount of time and the willpower to gain a more in-depth understanding of their mechanisms.

How much money can I invest? The budget check.

You’d like to invest your money and grow your assets? That’s great! This means you’ve taken your first step towards investment. To know how much money you actually have spare to invest, you need to work out a budget. This involves making a detailed list of your outgoings.

Here we distinguish between fixed costs, variable costs and reserves:

• Fixed costs: fixed costs include regular expenses like rent, taxes, health insurance, TV/Internet and electricity bills.
• Variable costs: variable costs include food and drink, but can also cover clothing, hobbies, restaurants and similar things. These costs are changeable.
• Reserves: to avoid a nasty shock when the dishwasher breaks down or when you have to visit the doctor, it’s worth building up some reserves – for example, to cover dental fees, the excess on insurance policies or unforeseen repairs or purchases. You can also build up reserves to make your short-term dreams come true – your next holiday, a new mobile phone or a course of study or training, for example.

You can then invest what’s left over.

One-time financial investment

Investing money regularly – for example, monthly or annually – is not the only option available. You can also invest on a one-time basis. If you’ve received an inheritance, won the lottery or saved up some money, it may be worth investing with staggered or one-off payments.

Defining objectives: here’s how to do it

Becoming financially independent, accumulating wealth or retiring early – there are many reasons for investing money. Firstly work out what your goals are.

• Daily needs and debt repayment: top priority is covering your living costs without falling into a debt trap. Here there’s no getting away from working out a budget and sticking to it rigidly. You’ll soon identify what’s burning a hole in your pocket. You can find out more about this in the chapter “How much money can I invest? The budget check”.
• Saving objectives: a reserve for emergencies should be top priority after covering your living costs. This avoids the risk of credit card debt or overdrawing your account if unforeseeable events crop up. A reserve equal to two to three months’ salary is recommended. But also consider what reserves you require to feel financially secure.
• Short-term objectives: you can achieve your dreams if you have enough money set aside. A fantastic holiday, a driving licence, a designer handbag or home renovations – you can fulfil your desires if you plan and save wisely. Steer clear of credit and loans, and instead only fulfil your dreams when you can afford it. Loan interest payments only put strain on your budget.
• Retirement planning: start making provisions for old age as soon as you can. You don’t just save on taxes by making regular contributions to the pillar 3a. The longer you pay money in, the more you’ll have disposable in old age. The compound interest effect, which we explain in greater detail in the article “The compound interest effect explained in simple terms”, is particularly beneficial in this respect.
• Investment: you can also define objectives for investment. Are you investing to supplement your occupational and private pensions? Would you like to have a specific amount of money in your account by a certain age? Or to build your own home? The more specifically you define your objectives, the more targeted your investment can be. But “I’d like to get more from my money” is also a perfectly valid reason.

Investing money – what options are there?

It’s not a matter of “financial investment” – but rather various ways in which you could invest your money.

• Securities: one option is buying securities, such as funds, shares or bonds – so that you can benefit directly from stock market fluctuations.
• Funds saving plan: the funds saving plan is a special kind of investment. Here you invest regularly and automatically. Find out more about it in the article “What exactly is a funds saving plan?”
• Accounts: bank accounts can also be regarded as an investment option – you receive interest on money that you lend to your bank. The interest is generally lower than the return you could generate with securities.
• Real estate: real estate is also a form of financial investment. Buying or building your own home should ultimately be beneficial – you don’t have to pay rent and ideally also make a profit if you sell it.
• Retirement planning: we now come to the last form of financial investment mentioned here – retirement planning. Occupational retirement provision is the first step to financial investment for many people. Some may not even be aware of it. We now come to how you can get more from your retirement capital in the chapter “Retirement planning – your first financial investment”.

Securities – how to invest on the stock exchange

Whenever financial investment is discussed, the conversation soon shifts to shares, bonds and funds, etc. What lies behind the most common investment options and for what purposes are securities suitable?

• Shares: the best-known type of security are shares. This is a share in a business, or a company limited by shares (Ltd). Shares are issued by companies. Anyone who holds shares in a company is a co-owner. Most shares are traded on the stock exchange. The share price is based on supply and demand. Companies distribute some of their profit to shareholders who receive a dividend. People who buy and sell shares usually also want to make price gains. 
• Bonds: you’ll almost certainly have heard of bonds too. Bonds can be issued by companies or states. In contrast to shares, with bonds you generally receive a fixed interest rate over a defined term. Bonds are also traded on the stock exchange and are subject to price fluctuations. These are generally less turbulent than with shares. Bonds are given ratings by rating agencies which indicate how secure bonds are. You can discover exactly how this works in the article “What are ratings?” More about bonds can be found in the article “An overview of the types of bonds”.
• Funds: with funds you invest in a wide range of securities at the same time. A fund is essentially a kitty into which lots of different investors put money – the contributions are managed by professional investment experts and invested in various securities. Funds are a good solution for diversifying your portfolio quickly and easily. Find out more about funds in the article “Individual securities versus funds – an overview of the differences”. The various types of funds available are explained in the article “What different types of funds are available?”
• Exchange traded funds (ETF) are a special form of fund. They are traded on the stock exchange and usually track an index (such as the SMI or Dow Jones). In contrast to traditional funds, ETFs do not have fund managers. Details on ETFs can be found in the article “What are ETFs and how do they work?”
  

Retirement planning – your first financial investment

It’s a case of “the earlier, the better” as far as retirement planning is concerned. This is not just because it’s generally wise to plan for the future as early as possible, but also because you can get much more out of your retirement capital if you start making pillar 3a contributions at an early stage. You’ll not only reduce your tax bill – as you can deduct the maximum amount from your taxes each year – but you’ll also receive interest and compound interest on your retirement capital.

Retirement funds, which can be coupled with your retirement savings account 3a, offer even greater potential returns – a range of retirement funds with varying share components are available depending on the investor profile. You can generate greater returns on your retirement capital with a retirement fund than from a traditional retirement account. The long-term investment horizon is particularly advantageous: the longer you keep your investment, the more positive the impact on return, generally speaking – this is another good reason to address the issue of retirement planning and retirement funds as early as possible.

If you opt for a retirement fund from PostFinance, you can invest money from your pillar 3a account in the funds and vice versa at any time without incurring any fees.

Our experts also provide advice on retirement planning in the video interview.

Four tips for your retirement capital

Tip 1: Pay into your pillar 3a as early as possible and as much as you can afford

Even though retirement planning may seem boring, it’s worthwhile paying in as much as you can afford and as early as possible.

Tip 2: Open several pillar 3a accounts and have your money paid out in staggered instalment

You can only take advantage of staggered payouts and optimize your tax liability if you have several retirement savings accounts 3a.

Tip 3: Invest in a retirement fund and get more from your retirement capital

The return from retirement funds is much higher than the interest income on the retirement savings account 3a – this means it may well be worth investing your retirement capital in a fund. You can find out more on this topic in the article “Retirement savings account 3a versus retirement funds – how to get more from your retirement planning”.

Tip 4: Avoid any contribution gaps

Long periods abroad, short stints of work with many different employers, accidents and illness – contribution gaps can soon appear, resulting in a reduction in old-age and surviving dependants insurance pension. Your pension is reduced by at least 2.3% for every missing year of contributions. That’s why it’s vitally important that you always pay your contributions, even if you’re abroad or not in work. You can find out how to close contribution gaps at The link will open in a new window ch.ch.

Four tips on avoiding investment mistakes

Tip 1: Sleep on your financial investment decisions – don’t rush into anything

Don’t make rash investments – even it they appear fantastic at first glance. Reflect on which investments are the best option for you, obtain advice and take your time deciding on an investment after speaking to your advisor.

Tip 2: Don’t be taken in by short-term hype

There are always investment trends which everyone seems to be following. In the 1990s it was tech companies, in the 2000s US real estate products, and today perhaps crypto-currencies. So even if investments in much-hyped areas may seem tempting and promise high return, it’s worth exploring them in depth and not simply jumping on the bandwagon. It’s generally advisable to stick to your investment strategy long-term, instead of putting everything into a new trend.

Tip 3: Don’t put all your money on one horse

What’s true of horse racing also applies on the stock market: putting all your capital into one company or sector can be risky. Diversify your investments as widely as possible. You can find out how it works in the article “Diversification – why you shouldn’t put all your eggs in one basket”.

Tip 4: Review your budget regularly

Have you worked out a budget and your saving and investment contributions? That’s great! You should still review your budget regularly to allow for any changes in your day-to-day life. This will enable you to continually identify potential savings or ways of spending your money more wisely.

Financial investment is not as difficult as many people might think – you can increase your assets smartly with some knowledge and a small amount of starting capital or by investing from CHF 20 a month. Want to learn more about investing? Under “Investing – in simple terms”, you’ll find articles that explain the world of investment in a clear and easily understandable way, covering everything from shares to compound interest  Compound interest is the interest paid on the capital deployed in addition to previously obtained interest. Interest that you receive this year will also bear interest next year together with the original capital. This means your assets grow at a disproportionately high rate. .