Investing in Switzerland: How to get started

How long have you been thinking about starting to invest your money? 🤔

Investing in Switzerland can be overwhelming. Do you need a finance degree to navigate it? Absolutely not. Investing is important and a crucial step to ensure your money grows over time. And if you're reading this, you're already on the right path.

Dive into this comprehensive guide on investing in Switzerland. We'll demystify the process, answer your pressing questions, and equip you with the knowledge to start your investment journey today.

In case you need assistance, we are here to help. With Selma Finance, you can create a tailored investment portfolio in just 5 minutes. Try it out for free here.

Why should you invest?

Let's start with the basics. Why should you invest your money instead of just keeping it in a savings account?

a. Fighting inflation

At first glance, money in a savings account seems safe. But in reality, inflation gradually eats away at your purchasing power. If you don't invest, your money could lose value over the years.

b. Benefit from compound interest

The sooner you start investing, the more you can harness the power of compound interest. This means you earn interest not just on your initial investment but also on the interest it generates. You can learn more about the magic of compound interest here.

c. Let your money work for you

By investing, you're putting your money to work. Instead of just sitting in a savings account, your money can flow into businesses and projects that grow and evolve over time. This not only offers potential financial returns but also allows you to actively participate in the economy.

d. Securing your financial future

Investing is a key to long-term wealth creation. It allows you to save for future financial goals, whether it's retirement, buying a home, or your children's education. With smart investment decisions, you can build a financial cushion that provides security for you and your family in the future.

What should you consider before you start investing?

The old myth that investing is just for the rich is not true anymore. In fact, almost everyone can and should invest their money.

The only basic requirement: You need to be 18 years old to open an investment account in Switzerland. You can start with even small amounts, and the sooner you begin, the more time you have to benefit from returns and compound interest. But some things should be considered before you start.

Things to consider before investing

a. Build a cash buffer

It's wise to have a financial cushion or cash buffer before you start investing. This should be enough to cover 3-6 months of your expenses. This way, you can weather financial setbacks without having to dip into your investments.

b. Plan for fixed expenses

Do you anticipate a significant expense in the next 1-3 years? In such cases, it's advisable not to invest the money you'll need for that. The money you invest shouldn't be required in the short term.

c. Think long-term

The money you invest shouldn't be needed in the short run. Investments can be volatile, and it's best if you can commit the money for several years or even decades. So, only invest funds you won't need in the coming years.

d. Only take risks you can afford

Every investment comes with risks. It's crucial to know your risk tolerance and choose investments that align with your risk profile. Not every investment will yield returns, but a diversified strategy can help minimize potential losses.

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?

As you have learned before you should build a cash buffer and take your future expenses in account before you start to invest. With those two things in mind you are not forced to sell you investments because of an unexpected event.

Simply said you can calculate your first investment like this:

First Investment = Savings - Cash Buffer - Planned spendings in the next years

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 much risk should you take?

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?

What is risk?

Risk is a concept often linked with uncertainty, danger, or the potential for loss. However, it also carries another facet - the opportunity for profit or favorable outcomes. The greater the risk, the higher the potential for returns, but also the chance of losing money. In simpler terms, risk pertains to the probability of your investments fluctuating in value over time. 📈

Which risk level is right for me?

Everyone has their own unique comfort level when it comes to taking risks. Some people are okay with taking bigger risks in the hope of earning higher returns, while others prefer safer investments.

But remember, your personal comfort with risk is only part of the equation when deciding how much risk to take. Your financial situation also matters a lot. So, the amount of risk you're comfortable with may not always match the level of risk that's right for your circumstances.

Risk is therefor a mix of:
… how your personal financial life and plans look like

… how your personal attitude towards risk is set

An example:

If you have exactly 5,000 CHF to invest and put it all into cryptocurrencies, that's a very risky decision. If you're investing 1,000,000 CHF and only allocating 5,000 CHF to cryptocurrencies, the risk is definitely lower.

The most common mistake new investors make is choosing the wrong level of risk. Many new investors are either too cautious or too daring. The key is to find the right balance of risk that suits your personal situation and goals. It's also important to regularly review and adjust, especially when your life circumstances change.

What should I invest in?

Having already discussed how much you should invest and which level of risk suits you best, we now delve into another crucial question: What asset classes should you consider for your investments?

There are numerous investment options, each with its own set of advantages and disadvantages. It's important to understand that not every asset class is suitable for every investor. Your choice should be guided by your financial goals, risk tolerance, and investment horizon.

a. 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”. 

b. 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.

c. 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. Read here more about the benefits of ETFs.

d. 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.). 

e. 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.

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 of crypto currencies, others lost their life savings.

What options do you have in Switzerland 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 like Selma Finance have become quite common for investing. Simply put, a robo-advisor is an online investment service that uses algorithms to create an investment portfolio and manages it for you. Once you start investing, the robo-advisor takes care of your investments, adjusting them based on your financial situation and market conditions.

You can try Selma Finance for free and without any commitment here.

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” 😅

Should you invest now? 

Looking back, it's also relatively straightforward to identify the perfect day to start investing. However, no one can predict how the financial market will develop in the coming days, months, or years.

So, we suggest not trying to guess when the perfect moment to invest is, as it often leads to disappointment.

Instead, today is an great day to start if you:

• You want to invest your money for the long term (at least 5-10 years).
• Your finances are in good shape.
• You've already set aside some money for emergencies.
• You're ready to ride out the ups and downs of the financial market.

The exact moment you begin isn't as important as your commitment to invest consistently. A practical way to reduce the impact of market changes is to invest regularly, like making monthly contributions. This approach can result in a more stable average purchase price over time, offering you long-term financial security.

Common investing mistakes (and how to avoid them)

No one is immune to making mistakes when investing. But why not learn from others' experiences instead of facing the same pitfalls yourself?

Mistake #1: Procrastinating

"If only I had started earlier!" – A sentiment many seasoned investors often express. This highlights the importance of entering the investment world early. You don't need to be wealthy to take the first step. It's more about seizing opportunities and benefiting from the power of compound interest.

Mistake #2: Misjudging risk

A certain level of risk is inevitable in investing. Some tend to be overly cautious, while others are too eager to take risks. Both extremes can be problematic. It's essential to strike the right balance between security and returns.

Mistake #3: Trying to outsmart the market

Attempting to pinpoint the "perfect" time to buy or sell can be a trap. Constant trading can lead to higher costs and increased stress. Long-term thinking and patience are often the keys to success.

Mistake #4: Letting emotions take control

The stock market can resemble a roller coaster. In such times, it's tempting to succumb to impulsive emotions. However, decisions driven by fear or greed rarely serve the investor's best interests.

Mistake #5: Investing without a clear plan

It might be tempting to invest in the "next big thing" or choose stocks based on personal preferences. But a well-thought-out investment strategy considers diversification and long-term goals, rather than focusing on current trends.

Mistake #6: Failing to diversify

Putting all your eggs in one basket is risky. Those who don't diversify often place their capital in just one asset or industry. While this can yield high returns in favorable times, market fluctuations can hurt the entire portfolio. Diversification spreads the risk and increases the chances of steady returns. It's wise to invest across various sectors, countries, and asset classes, rather than just chasing the latest "hot tip."

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

1. Long-term commitment: Invest only money you can leave invested for a long time
2. Know your risk: Be aware of your personal risk profile
3. Diversify: Lower your risk by investing in many things at once & investing long-term 
4. Choose wisely: Choose the right provider for your needs
5. Start now: 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].