Create your own ETF Savings plan: The ultimate guide

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Investing regularly in the market is a very smart and effective way to build up a nice little fortune.

Create your own ETF Savings plan: The ultimate guide
 
  • Level: For beginners
  • Reading duration: 7 minutes
What to expect in this article
Are you ready? Let's get started!

Savings plan: what is it and how to create one with ETFs?

We have already mentioned it several times, but what is a savings plan?
Definition: A savings plan is a strategy for investing and managing ones savings by making small investments at periodic dates.
Here are some steps you will need to take to select ETFs and build your savings plan:
  • Make sure you set aside a little money every month to invest (If you are here, I think this step is already part of your daily routine)
  • Choose the ETF in which to invest. A very important decision, not that it is irreversible, but better to think about it right from the start
  • Select the broker to invest with
  • Set up your investments regularly and automatically
  • Monitor the performance of your investments on a regular basis
Not sure which broker to use? I know at first it is never an easy choice. For Germany, Italy, Austria, Spain and France, we we offer a broker comparison. For Great Britain, we need to ask you to do your own research.

When does it make sense to do a savings plan?

Investing your long-term savings is crucial, but it is equally important to do so intelligently.
Here is where the savings plan comes to our aid. Not because investing without it is wrong, but because it turns out to be a very good strategy in many circumstances.
In many cases, investing the full amount available immediately can certainly be the winning move to put your savings to work from day 0. In order to do this, however, one needs to have a minimum of skills to be able to choose the right time to invest. I can assure you, however, that doing market timing is by no means simple. Moreover, in most cases, you do not have a large amount of money to invest right away.
The usual situation is that you can save a small amount for your own monthly savings, after covering all your expenses.
With a savings plan, you don’t have to wait for the perfect moment to begin investing. Any time is the right time to take the first step.
Should the price of the ETF you have purchased fall shortly after your first order, there is no need to worry.
Instead, you can take advantage of this situation by continuing to buy month after month and lowering your average purchase price.
During that time, you are indifferent to whether the market increases or decreases by 10% in either direction. This indifference can greatly affect your mindset.
And above all, this strategy takes very little time to implement. You will not, for example, have to check the markets every day.

What are the main advantages?

Let us now look at some of the main advantages of building a savings plan with ETFs.
  • Affordable: You can invest from a small amount. By choosing the right broker you can save on the management costs required by banks.
  • Flexible: Manage your portfolio smoothly and quickly. You can choose anytime whether to stop investing or take a break.
  • Diversification: An ETF, as a basket of diversified securities, allows you to invest in all major markets with only one product.
  • If you use accumulation ETFs you will take advantage of what Albert Einstein calls the eighth wonder of the world: That is compound interest.
  • Accrual: The savings plan involves regularly investing a consistent amount of money every month. This feature makes it perfect for any investor who wants to invest a small part of his or her monthly salary.
  • Psychological aspect: Having a pre-set strategy can be really useful in times of market slumps.
  • Automation: Nowadays, several brokers allow you to manage your savings plan in a fully automated manner. Once you choose the ETF and the amount, everything will happen automatically and you achieve your savings goal.

Savings plan with ETFs: a (very interesting) case study

If you have come this far, you are already well on your way. As the saying goes, 'Well begun is half done'. But let's now look at a case study with a construction of a savings plan with ETFs. So that you can also see some numbers.
It will be very useful.
I, Lorenzo, a 25-year-old office worker, started saving saving 100 euros per month on 1 January 2011. I chose to invest this money in an ETF called MSCI World. It is an ETF that replicates stocks from around the world and mine is accumulating.
Do you know how much I earned after 10 years? 21,531 euros. Yes, you read that right, with only 100 euros a month and investing a total of 12,000 euros.
If I would’ve started investing 10 years earlier in 2001, my accumulated capital would amount to 60,000 euros. That is 2.5 times of my investment of 24,000 euros.
And after 30 years?
We are speaking about 129,798 euros. More than 3.5 times of my investment of 36,000 euros.
Despite setbacks such as the Dotcom crash, the global financial crisis and even the recent impact of the COVID pandemic, the time factor in the market has provided a remarkable return.

Development of an ETF savings plan (by investment period)

  Deposit value on 31.12.2020, EUR 100 monthly deposit, MSCI World ETFF
Investment period Payments Deposit value
5 years 6,000€ 7,950€
10 years 12,000€ 21,531€
15 years 18,000€ 39,845€
20 years 24,000€ 59,992€
25 years 30,000€ 82,057€
30 years 36,000€ 129,798€
Source: justETF Research, MSCI World Net in EUR, distributions reinvested, TER 0.20% p.a., own calculations; as of 31.11.2022

Which ETF to choose?

I told you earlier that the most important decision is surely to select the ETF(s) in which to invest. The choice that many people fall back on is an accumulating global equity ETF.
Here are the main ETFs and their costs (TER) for your savings plan.
Index Investment focus Stocks Costs (TER) Alternative Indices
MSCI World Developed Markets 1,464 0.10 - 0.50% Developed Markets ETFs
MSCI ACWI Developed and Emerging Markets worldwide 2,837 0.20 - 0.45% World ETFs
MSCI World SRI Developed Markets sustainable 372 0.18 - 0.26% Sustainable World ETFs
FTSE Global All Cap Choice Developed and Emerging Markets sustainable 7,621 0.24% Sustainable World ETFs
Source: justETF Research; Stand: 31.05.24

Savings plan costs with ETFs

Almost there. Let us now turn to another of the most important components: costs.
Although they seem minimal, costs in the long term have a very significant impact on our portfolio.
This means: When evaluating brokers, special attention should be paid to the commissions they charge.

How it works to invest regularly

  • First, you need to open an account with an online broker. Make sure you choose one that offers a savings plan service in ETFs. Not all brokers do this.
  • Now, you can set up a monthly direct debit that covers the amount you want to invest and monthly platform fees for trading charges.
Let us guide you step by step through the process of setting up your savings plan.
1. Choose your strategy
Decide how, when and which kind of ETFs you want to invest your savings in. This initial step is very important. 
Ask yourself: Do you want a portfolio just in equities or do you want to add bonds as well? Do you think it is useful to have a small percentage in gold? Well, these are decisions you have to make right from the start.
It is always important to remember that this is not an irrevocable decision. ETF savings plans are flexible and you can change or discontinue them whenever you want.
2.Select your ETF
After having decided how to divide your savings among different investments, you can then choose the specific ETF(s) to invest in.
You should consider the fund's size, TER, accumulation or distribution, currency, and exchange listing when making this decision. We recommend using the filters in our justETF screener and/or our justETF app
Nothing is complicated, you will find everything here.
Below you can also look at the major global equity ETFs. For optimal diversification.
Global ETF investment
Global ETF investment
Discover the best ETFs on the MSCI World Index in our investment guide!
Learn more
3. Set up your regular savings and investment plan
Now all that remains is to choose your broker (watch out for commissions) and set up your automatic savings plan. I hope that with these pointers you will now be able to select your ETF and start your savings plan.
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