An investment plan is a formula for investing an amount in one or more investment funds automatically and at fixed times. It is a misconception to think that investing is only for the rich of the world, because in most financial institutions it is already possible to invest from 25 or 50 euros per month. In the long run, you can get high returns, which makes an investment plan a good alternative to the low-interest savings account that earns next to nothing. With most passbooks you have to make do with an interest rate of 0.11% and with some banks you won’t even charge interest.
Investing for beginners with an investment plan
Contrary to what happened a few decades ago, investing is no longer reserved for people with a large fortune or those who have sufficient knowledge in the matter. No, today everyone can invest and for a very modest sum. The investment formula par excellence for novice investors is the investment plan.
Investing using an investment plan offers many advantages. One of the biggest advantages of an investment plan in which you periodically invest a fixed amount, is that you shut down your emotions. What does this mean exactly?
Many banks or brokers offer you the possibility of working with an automatic transfer. This means that the agreed amount is invested on a fixed date, for example the 15th of the month. By working this way, you invest both when the underlying securities are performing and when they are performing poorly.
Thanks to such a plan, you avoid, for example, making bad Investment Research Services based on your emotions. Think for example of a stock market crash. In such a situation, you might be tempted to sell everything. But in the long run, the stock markets always recover.
Flexible investments
With many financial players, you are not required to invest monthly or annually. As soon as you need your capital for other things, you can temporarily stop transfers. Or, conversely, you can make an additional contribution at times when you have more capital.
A tailor-made investment plan
Another advantage of the investment plan is that the financial players are obliged to determine your investor profile. They do this based on a few questions.
Through this questionnaire, your bank or broker can find out how much risk you are willing to take. They also probe your knowledge of certain investment products. The European investment directive Mifid II obliges banks to do so.
Once you have answered these questions, the financial institution will establish a risk profile. Based on this profile, a certain plan will be proposed. These are the main investment plans:
Defensive profile: The bank or broker will offer you an investment plan that involves investing primarily in fixed-income assets, such as bonds.
Neutral profile: The bank or broker will offer an investment plan that is not too defensive or dynamic. In other words, he will not opt for fixed income or riskier assets.
Dynamic Profile: Dynamic profiles have the option of investing in investment plans that are primarily exposed to equities. These securities involve highly volatile movements.
Diversified investment
Also, with an investment plan, you are not exposed to, for example, just one type of stock or bond. In fact, the capital invested is spread over several investment products. This diversification considerably reduces the risk: the weaker performance of one share is compensated by the better performance of another.
Another major advantage of long-term investing is the compounding effect (when dividends and coupons are reinvested). This means that the potential return on your investment is, in turn, returned. The earlier you start investing, the more this effect plays out and the more your capital can grow.
What are the risks of an investment plan?
An investment plan is obviously not without risk. Even with the most defensive investment products, you risk losing part of your capital if the markets under perform. The investment is therefore mainly interesting for people who can do without part of their savings for a longer period. We prefer an investment horizon of at least 10 or 20 years.
Only invest with money you can afford to lose
Invest with capital you can afford to lose. It can always happen that you suddenly need to dip into your investment capital to pay for an unexpected expense. If this happens at a time when the underlying securities are performing poorly, you may lose some of your investment.
Is investing expensive?
Anyone investing in our country has to consider all kinds of costs and taxes. The tax treatment of an investment plan depends, among other things, on the type of investment fund behind it.
With an accumulation fund, no dividends or coupons are paid. Revenues are reinvested. In this case, you do not pay a withholding tax of 30%, but a stock exchange tax of 1.32% on exit with a maximum of 4,000 euros.
With the other investment plans, the capital is invested in a distributing fund. In this case, dividends and coupons are paid. On these receipts, you pay a withholding tax of 30%. On the other hand, you are exempt from the aforementioned stock exchange tax.
