Heritage: Where should I start?

In a previous article, we confirmed that we could plan to reach our medium- to long-term goals a few years ago. Building liquid savings welcomes funding these needs. But where do you start building your legacy?

Whether you plan to travel around the world in 3 or 5 years, replace your family car in about 7 years, provide higher education to your child in 12 years, or not allow early retirement within 20 years. , When do you need to immerse yourself in your savings These various stages of life.

And never forget the mortgage maturity in 15 years …

The amount expected or refunded is important and our savings alone cannot cover them. Fortunately, there are two strong allies: time and compound interest.

Adopt a savings routine

The passage of time is your greatest friend Your current assets.. This makes sense to introduce a painless, systematic and automatic savings routine. Professional attendant! You will save a lot … time.

To set up a savings routine, for example, you need to systematically save a certain amount each month. This capital may be automatically invested in investment fund plans.

This amount is predefined by Budget And it doesn’t affect your lifestyle. Thanks to the flexibility provided by investment funds, you are free to adjust your monthly payments and withdraw or withdraw the amount you want to carry out your project.

By adopting such a routine, you can simplify your savings as much as possible without worrying about it. Obviously, you need a manager to help you rebalance your portfolio at the right time. You need to establish a relationship of trust between you and your wishes, and you need to take risk awareness into account. Regular updates by advisors (for example, annually) are sufficient. The latter should also help you manage the duration of your investment according to your personal goals. If he hasn’t been contacted by a financial planner for two years, he’s probably doing something better. Change it.

In future articles, we’ll return to the risk side. You may need to open your mind to new solutions to save time in achieving your goals. This allows you to earn above average revenue.

Interest creates interest

Since the concept of time is defined, we can introduce the role of compound interest. It’s very easy. The interest that accumulates each year is reinvested, and then interest is accrued. This is called compound interest.

Small example: 100.-Invest a franc at 2% for one year. At the end of the year, it will be 102. -. At the beginning of the second year, these 102.- are also invested at 2% and have the effect of converting to 104.04. This “0.04” doesn’t look like anything, but over time (remember the first ally), interest in interest accumulates, forming additional significant savings.

Therefore, as shown in the graph below, the investment takes the form of an exponential curve (distinguished from a straight line). Note that the higher the average return, the more exponential the curve will be.

2022.03.21.Compound interest

An example of a simple conclusion

To illustrate this point, let’s say you need 24,000 .- in 10 years to run a project. You have your first ally: time, or 10 years. This horizon gives you the opportunity to invest your liquidity. This can be done in three different ways to reach the goal.

-To save (0%) without investment, you need to secure 2,400. -10 years a year.
-To reach a total of 24,000, you need to invest 1,821 a year in 10 years, with an annual return of 6%.
-There are 2,400 savings per year, but if you invest at 6% per year, you can reach 24,000 in 8 years and a few days.

This example perfectly shows that time combined with investment saves money, or saves time.

Then you can start. And, as the saying goes, “The best time to plant a tree was 20 years ago. The second best time is now.”

In the next article, I will introduce you to the concepts of risk and volatility.

Raphaƫl Battu founded the site MaRetraite.ch In 2019, we will provide answers to frequently asked questions from our customers and leverage their experience and expertise for the benefit of all. The purpose of this site is to explain various Swiss pension issues in a simple way and to help readers gain financial independence.