An ETF savings plan is the simplest form of investing: set it up once, let it run for decades. How to pick the right ETF, which contribution leads to which goal and what compounding makes of €200 a month.
In short
- €200 a month at 6 percent: €33,000 after 10 years, €92,000 after 20, €200,000 after 30.
- ETF selection: MSCI World or FTSE All-World, physical, accumulating, under 0.2 percent costs, above €1 billion in size.
- Contribution on payday, annual increase of 3 to 5 percent, rebalancing with the savings account.
- The plan keeps running in a crash; that is exactly when it buys cheaply.
Why a savings plan
A savings plan buys ETF units every month for a fixed amount, whether prices are high or low. At high prices you get fewer units, at low prices more. You do not have to hit a moment, and the automation protects you from the temptation to bail out in a crash. Historically every 15-year period in the MSCI World was positive, with a savings plan even more reliably.
Choosing the ETF
Index: MSCI World with around 1,400 stocks from 23 developed countries or FTSE All-World with around 3,600 stocks including emerging markets. Both are over 60 percent US, which mirrors the world market. Replication: physical, the ETF holds the shares. Use of income: accumulating, dividends are reinvested automatically and tax is minimally deferred via the advance lump sum. Costs: under 0.2 percent a year. Size: above one billion euros so the fund is not closed. Domicile: Ireland, because of the tax treaty on US dividends. That leaves a handful of candidates that hardly differ.
The contribution
Ten to twenty percent of net income, the day after payday. With an annual increase of three to five percent the contribution grows with income. At 6 percent return, €200 a month gives around €33,000 after 10 years, €92,000 after 20, €200,000 after 30. At €400 everything doubles. The savings plan calculator shows your path with a chart.
Compounding
In the first ten years most of the wealth comes from your contributions; then it flips: after 30 years at €200 a month, €72,000 are paid in and €128,000 are gains. The last ten years bring more than the first twenty. That is why the start date matters more than the contribution, and why a portfolio for a child is the best present.
The safe part
Alongside the plan runs the savings account: emergency fund and the safe part of the portfolio. Whoever wants 70 percent stocks saves 70 percent into the ETF and 30 percent into the savings account. The allocation is checked once a year.
What you should not do
Pause the plan in a crash. Combine several ETFs with the same stocks. Take a theme ETF as the core. Spend distributions instead of reinvesting. Switch brokers because another pays a bonus; transfers take weeks. And: open the portfolio daily.
Frequently asked questions
Distributing or accumulating?
Accumulating for wealth building, distributing if you want to use the annual €1,000 investor allowance; that can also be done with occasional selling and rebuying.
What about emerging markets?
The FTSE All-World contains them at around ten percent. Whoever has the MSCI World can add an emerging markets ETF at 10 to 20 percent but does not have to.
Can I stop the plan at any time?
Yes, change, pause or sell at any time. There is no term and no notice period.
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