A financial cushion for the children: are you still just saving or are you already investing?

Security should be the priority when it comes to investing for children. Anyone who wants to provide today for their children’s education, first home or financial independence will quickly come up against the limitations of saving using the traditional methods. Interest on a savings account is certainly the most secure. However, parents can put their children’s financial future on a firmer footing by investing.

Traditional saving feels good at first glance: it is predictable. The agreed interest rate on the savings account is fixed, and the number on the account statement won’t get any smaller. But this supposed security also entails a guaranteed loss: since interest rates have for years remained at historically low levels, the return is almost always below the rate of inflation. This means that anyone steadily saving now is guaranteed to lose purchasing power due to inflation. The money doesn’t actually get any less; you simply won’t be able to buy as much with it in the future.

Sascha Kever, Chief Investment Officer at Cornèr Bank, gets straight to the nub of the problem in the interview: «Inflation gradually erodes purchasing power. For over a decade, interest rates in Switzerland have fallen close to zero, even dropping into the negative range at times. For anyone depositing their money in a savings account, this presents a considerable disadvantage.»

In order to effectively protect assets for the next generation, strategic investment is highly recommended. Many parents shy away from the stock market because they are afraid of the unpredictable risks. But if you understand the basic mechanisms, you can minimise the risks when accumulating wealth for your children. Kever recommends a change of direction in long-term planning for the future: «It makes most sense to invest money in real assets, such as equities. They aren’t a perfect solution, but they still offer effective indirect protection against inflation and are therefore an essential element of long-term planning for the future.»

The scepticism of many parents towards investments usually stems from a fear of unpredictable market fluctuations. This is precisely where an investment fund savings plan has a conceptual advantage: the risk is not focused on an individual company and is rather spread out systematically. «A fund contains a variety of different securities, which significantly reduces the risk. You are not dependent on the performance of a single share or a small group of securities, but rather benefit from the performance of an entire market», explains Kever.

According to the Cornèr CIO, those relying on individual, currently solid market leaders are taking an unnecessary risk: «Stock market performance shows that many stock market leaders at the beginning of this century are now largely irrelevant, whilst new industries and companies are constantly emerging and growing rapidly. With a fund, you are automatically broadly diversified and have a stake in these new developments.»

With a savings plan, you also benefit from the average cost effect, as market fluctuations are smoothed out with regular deposits, which means that more shares are bought when prices are low, and fewer shares when prices are high. 

Economic development goes in cycles, never in a straight line. For short-term investors, these ups and downs can be problematic. When saving for children, however, a critical lever comes into play: the long investment horizon. Those who start early have 10, 15 or 18 years until the child reaches adulthood or begins their studies.

Kever stresses that the historical data speaks for itself here: «History shows us that those who invest over the long term are usually winners. With an investment horizon of at least five to seven years, these cycles have historically evened themselves out.» Waiting for the supposedly perfect time to enter the market often turns out to be a misconception in practice. The duration of the investment is much more important than perfect timing. «The best time is as soon as possible. Since market movements cannot be predicted, waiting – for example, for the next correction – often means missing out on the valuable effect of the passage of time. It is the duration of the investment in particular that tends to be the most important factor driving return and performance: the longer the investment period, the more you benefit from an attractive average price, thereby minimising the risk of entering the market at a disadvantageous time.

Put simply, if you want to lay the financial foundation for the next generation, don’t wait for the perfect moment – instead let time do the legwork.

Harness the power of compound interest and put an end to the erosion of purchasing power. Clanq and Cornèr Bank make it easier to get started: open your Cornèr Accumulation Fonds builder now via Clanq, the app for family finances powered by Cornèr.

The first 300 new clients will receive CHF 250 credited to their investment account as free start-up capital immediately after opening an account using the voucher code «Invest250»!

Information at Investing for children | Cornèr Fund Building in the Clanq app

What does investing mean for families? And what’s the story behind the Cornèr Accumulation Fonds that Clanq is now offering? If you’d like more expert advice, you can read the full interview with Sascha Kever here.

Don’t miss a thing — we’ll keep you up to date!

Sign up for our newsletter.