«If you are dissatisfied with the low real interest rates and constantly higher bank fees, online wealth management offers an alternative.»
How do I invest money in Switzerland?
Everyone handles money differently. Some are conscientious savers, others spend it with both hands. There are all kinds of models in between. However, most of them have one thing in common: people in Switzerland don't like to talk about money. Discretion seems to be a characteristic not only of the banks, but also of the population.
Yet sometimes it would be important to talk about money and ask: «How do I invest my money in Switzerland?» For example, when a considerable amount has accumulated in a salary or savings account.
Where to put the money
It doesn't matter whether you're the kind of person who is generous with their budget or whether you put every penny aside. Sooner or later, most Swiss people reach the point where the question of how to invest their money properly becomes relevant. The timing is individual: when you start your career, when you receive an inheritance or perhaps when you retire. However, the same question arises for all potential investors. What are the alternatives? Are there still any ways to make your money work for you today?
The following overview shows which options are available – and what advantages and disadvantages are associated with them.
The bank account
Everyone has at least one and knows how to use it. However, there is practically never any real interest. For most Swiss people, the bank account is the place where they keep their assets alongside their cash. With investment security, immediate access to money and easy handling, the bank promises the perfect solution for anyone who prefers not to worry too much about financial matters. However, deposits are exposed to the bank's counterparty risk; at Swiss private banks, the first 100'000 francs are protected by the deposit insurance. In the case of cantonal banks such as Basel-Landschaftliche Kantonalbank (True Wealth's custodian bank), the state has unlimited liability for the bank's liabilities.
Even though key interest rates have risen again since spring 2022, savers have been left out in the cold. The banks' interest rates lag far behind those of the central banks and are below the inflation rate. This may be bearable up to a certain asset limit, but it is not satisfactory. What's more, additional bank charges introduced during the zero interest phase have been stubbornly maintained to date.
The third pillar pension account is an exception. Interest rates are somewhat higher here and, as an incentive, amounts paid in can be deducted from taxes. However, normal employees with a pension fund may currently pay in a maximum of CHF 7'056 per year (the figure is higher for self-employed persons without a pension fund). However, the high level of security and tax relief comes at the cost of limited liquidity: money from a 3a account is only returned on retirement. Exceptions are cases such as emigration, buying a house or self-employment.
They were one of the most popular investment instruments in Switzerland until the 1990s. Medium-term notes offer a fixed interest rate over a fixed period of up to 10 years. During this time, the money is tied up and cannot be withdrawn. At the time, medium-term notes were comparatively attractive with interest rates of 4 to 5 percent; they became less attractive with the sharp fall in interest rates in the 2010s. Interest rates have since recovered slightly, but the product-specific restrictions remain: they cannot be traded, penalty fees are payable on early termination and there is a risk of default if the bank becomes insolvent.
Trade on the stock exchange yourself
Do you also believe that you have the right instinct for certain shares? Or perhaps you are a specialist in a sector and can spot trends that the majority of investors don't recognize? The fact is: trading on the stock market yourself is tempting and has become much easier thanks to the internet and smartphones. Numerous financial institutions offer online trading through which private investors can trade, check prices and consume financial news. Of course, online trading also has its advantages and disadvantages.
- Time-consuming: The work is up to you. For investors with little experience, this can quickly become very time-consuming. You have to manage a portfolio yourself, take care of diversification and, if necessary, create a risk model. And keep your portfolio on course at all times. This comes at a cost.
- Risky: Many investors overestimate themselves, buy or sell at bad times, trade too often or make other classic investment mistakes.
- Liquidity: If you urgently need money, you naturally have more control when investing independently and can sell securities quickly (but you have to do this yourself).
- Minimum deposit: Online trading is already possible with small contributions, even if it only makes limited sense.
Traditional wealth management
A flagship discipline of private banking in Switzerland: traditional wealth management. If you want to manage your money professionally, you may find the right partner here after a few preparatory and advisory meetings. As soon as the contract is signed and sealed, you as a client no longer have to invest much time.
However, the entry hurdles are high: many banks only accept customers from CHF 100'000 upwards, in many cases only from CHF 500'000. The lower the amount invested, the higher the fees – which in turn reduces the return. Another disadvantage is the lack of liquidity: depending on the contract entered into, it can take weeks or months before you have access to your money. And of course there are risks here too, as asset managers only boil water and invest your assets in the markets.
Digital wealth managers
Digital walth managers, often referred to as robo-advisors in the early years, are providers such as True Wealth, who offer their asset management on the web or via a smartphone app, with a rule-based system making the investment decisions. However, there are people behind the system who are easy to contact via the usual communication channels if you have any questions. In our case, investments are purely passive. This means that customer funds are invested exclusively in ETFs (exchange-traded funds) to reflect the various markets. The return is generated by the overall growth of the invested markets. This is based on the realization that even professional investors almost never generate better returns than the market in the long term. In other words: It is not only safer, but also more efficient to invest in indices than in individual shares, bonds or other individual securities. The securities (ETFs) are held in custody at a bank and are considered special assets, i.e. they are not part of the bankruptcy estate if the bank or asset manager goes bankrupt.
As the client, you simply define the guidelines: we work with you to determine the optimum investment mix for your portfolio, and we take care of the rest.
There is also an entry threshold here; in the case of True Wealth, the minimum amount is CHF 8,500. However, clients benefit from low overall costs, professional risk management and high liquidity. We want you to be able to withdraw your money at any time within a few days. The same applies to the seamlessly integrated Pillar 3a and the children's accounts, with which a broadly diversified portfolio can be built up with small amounts – from CHF 1'000.
If you don't want any effort or risk, a bank account is still the best option. However, they have to live with the fact that their money is mostly safe, but yields practically no return. The money is therefore not invested, but only stashed away in a reasonably safe place. However, the global financial crisis of 2008 showed that even banks are not immune to risks.
Professional asset management is unattractive or even inaccessible for most investors due to its costs and the investment amount required. In addition, traditional, actively managed asset management mandates are rarely able to keep their promises of returns after costs.
Online asset managers offer an alternative: Low costs, index-tracking investment approach, little effort and full transparency. This is a very attractive solution for investors who can bear a certain amount of market risk.