Those interested in investing money face a lot of questions right from the start. The amount you want to invest is also extremely important, i.e. it makes a difference if you are able to invest CHF 5,000 or CHF 100,000. For smaller amounts of investable capital, investing in individual securities will be counterproductive: The transaction costs will be too high and diversification too poor. Investment funds are recommended instead. In this article, we have compiled the five best investment strategies for investing your money successfully:

• Strategy 1: Invest early and keep costs low
• Strategy 2: Spread widely and stay on course
• Strategy 3: Rebalance from time to time
• Strategy 4: Stagger your purchases
• Strategy 5: Limit your losses

Investment strategy 1: Invest early and keep costs low

Time is a crucial factor for success. It makes a big difference whether you are pursuing a short or long term investment strategy. The earlier you start to invest, the more impressive the compound interest effect. If you invest CHF 15,000 at the age of 20 at an average return rate of of 4%, you will have amassed a fortune of approximately CHF 88,000 by your 65th birthday. If you calculate a more optimistic return of 6%, which is quite realistic for shares, you will have accumulated total assets of around CHF 206,000.

A longer time horizon not only gives rise to a more impressive compound return effect, but also reduces the danger of losses for riskier investments. With an investment horizon of 35 years or more, the statistical probability of a loss is very low while the chance of high profits is relatively high. As a rule of thumb, you should always have a time horizon of ten or more years and plan for the long term if you are using a share-based investment strategy.

In addition to giving consideration to the investment period, investing in low-cost products is also a good idea. This is because investing money also means incurring fees. It is therefore important to keep a close eye on costs. You should always ask financial product sellers and financial advisers to disclose all of the costs and fees and clearly explain why they are fair and reasonable.

Investment strategy 2: Spread widely and stay on course

Because it is difficult to make forecasts – about the stock market as a whole and especially about individual stocks – you have to spread your capital widely. A sensible investment strategy therefore involves refraining from buying just a few shares, as that can go drastically wrong.

It is important that you are clear about the fact that risks cannot be avoided. This applies even if you leave your money in a savings account. Any money kept in a savings account will earn very little interest and will be exposed to the risk of a decline in value as a result of inflation and potential administration and account management fees. Just because there are always risks, you shouldn’t become overconfident and aim for overly high returns, however. The rule is: higher returns can only be achieved with higher risk.

Once you have decided on the right mix it is important to stick to this strategy. Don’t turn everything upside down and incur unnecessary transaction costs at the first sign of headwinds. Don’t let the news of the day drive you crazy. All investors dream of selling at the price peak and buying again at the low point. But it is almost impossible to realise this in practice. This is why it’s better to always be present on the stock market. The main thing is to not be swayed by the pronounced price fluctuations of equities.

It also important to keep your investments over the entire investment period because the high long-term returns on equities can often be traced back to only a few days with very high price increases. Investors who have consistently invested in European equities since the beginning of 1999 have roughly doubled their investment to date (measured by the MSCI Europe stock index). However, this good performance is almost exclusively attributable to the ten best trading days in this period.

Investment strategy 3: Rebalance from time to time

Price gains and losses can not only test your nerves, they can also mess up your investment strategy and associated mix of investments defined at the beginning. You should therefore rebalance from time to time to keep the percentage distribution of your assets constant.

Example

Suppose your strategy is to invest half of your assets each in equities and bonds. You then select your investment products accordingly. If share prices rise and bond prices fall at the same time, the equity component can easily increase to become 75% of the total portfolio. The next step would then be to sell shares and buy bonds to restore the original distribution of assets. The opposite applies before the share prices fall and bond prices rise.

By rebalancing in this way, you achieve a countercyclical investment strategy that, in the best case, will lead to you buying at low prices and selling at high prices. However, the more often you rebalance, the higher the transaction fees and the less you can benefit from longer-lasting price trends. As a rule of thumb, review your portfolio every twelve months in order to determine whether it needs to be rebalanced.
 

Investment strategy 4: Stagger your purchases

There is a simple way out of the dilemma of not being able to know in advance whether stocks are currently cheap or not: staggered investment. If you inherit CHF 300,000 today, you shouldn’t just invest everything at once. It is better to do it at regular intervals over an extended period of time. Around CHF 50,000 today and then another CHF 50,000 every four months until the entire amount is invested after 20 months. Considered over the period as a whole, you thus invest at an average price, which is cheaper (cost average). It also pays off to invest subsequent amounts in stages.

You can easily invest in stages yourself. Various providers also offer savings plans and invest in a range of different funds. If you want to work with such a provider, you are best advised to choose one who invests your money in low cost ETFs (Exchange Traded Funds). If you make regular deposits, your fund investment strategy will achieve an average cost effect: more fund units are bought at low prices, less at high prices. It is also important to compare the costs here.

Investment strategy 5: Limit your losses

Yes, losses hurt – and when you sell the security, the loss is not just on paper, it is definitive and final. That is why many investors keep hold of a stock even though its price has fallen massively, in the hope that they will be able to sell it again for more than the acquisition price at some point.

It is also important to at avoid losses because they are difficult to recover from. If a share loses 50%, it then has to double in value for it to return to its starting price.

Example

Share X falls from CHF 100 to CHF 50 – which is a loss of 50%. To get back to the starting price, it must now rise from CHF 50 to CHF 100, which corresponds to a gain of 100%.