Amortize or invest?
In view of the sharp rise in interest rates, before reinvesting your savings, you should check whether it makes sense to reduce your mortgage.
Released today at 06:00
Economic or risky entry? The investment horizon and the debt burden should be considered before investing.
Illustration: Christina Baeriswyl
I have a 422 mortgage with Bank Cler‘000 francs by October 2023 for my home and around 153 more‘000 francs on a commission-free Savings Account Plus, which also earned minimal interest. The advisor is now offering me the Bank Cler Sustainable Growth CHF B investment solution. What is your opinion? Or do you recommend alternatives? Reader question from WB
It is not clear to me what goal you are pursuing with the planned investment of your savings, what your living conditions are, what investment horizon you have and if you have other financial resources. These are all fundamental requirements for evaluating a possible investment.
If you are younger and have a long investment horizon of ten years or more, it may be worth considering the investment solution suggested by your bank. This is because it is growth-oriented and invests most of its capital in equities in Switzerland and around the world. Only a small part is invested in bonds and cash. Nearly three-quarters of the money is invested in a broadly diversified range of equities, most of it in Swiss equities.
The Swiss franc accounts for over 60 percent of the currencies used. However, investments in euros, US dollars and other currencies are also used, which also involves currency risk. The objective of this fund, managed according to sustainability criteria, is to achieve growth that is only possible with a high proportion of shares. However, such growth is not free: you have to be willing to accept high investment risk and sharp price fluctuations.
You must expect us to go through a long bear market.
Now you can argue that the stock markets have already collapsed this year and you can enter at low prices with this investment solution. This is possible. However, you have no guarantee that the stock exchanges will not drop even lower in view of the rapidly and sharply rising interest rates, especially as many stock companies are making changes to their profit forecasts.
Also, you have to expect that we are going through a long bear market. It is probably unrealistic to assume that stock prices will recover soon. A bear market can last for several years. This is not a fundamental downside to investing, but you must be willing to accept such a scenario if you invest now. After all, you have a slightly lower risk of buying expensive and the ability to buy at a good time at best. But even this is not certain. The proposed fund is professionally managed and offers you a broad diversification with a main focus on equities.
What I find negative, however, are the hefty fees that are charged to the fund and which ultimately impact your performance. The fund, which invests most of the money in various funds, has a total TER expense ratio of 1.23%. If your goal is to benefit from a subsequent long-term recovery in equity markets, you could instead invest two-thirds of your money in an ETF on exchange-traded funds that is publicly traded and that is linked to the Swiss Market Index and a worldwide stock index. You could leave the rest of the money in your savings account.
Especially in turbulent times, it is advisable to have as little debt as possible.
Examples of such ETFs are UBS ETF (CH) SMI (CHF) A-dis with annual fees of 0.2 percent and UBS ETF (IE) MSCI ACWI SF UCITS ETF (hedged by CHF) A-acc with annual fees 0.21 percent. You will save one percent per year on taxes alone. It should be noted that all of these investments require a long investment horizon of ten years or more.
If you are older and possibly retiring, I would consider investing in your retirement provision via pillar 3a and voluntary pension fund purchases, which entail tax advantages. If you are close to retirement or are already retired, I would not invest the money at all, but would consider paying off the mortgage partially. Your mortgage still lasts for about a year. But interest rates are rising, making partial depreciation increasingly attractive. In my opinion, before investing any new money, you should also consider reducing your mortgage. Especially in turbulent times, it is advisable to have as little debt as possible.