If you can easily pay your bills and you are accustomed to saving regularly, then you have to build an emergency fund. If this is built and safe, you might want to start investing.
The first step of investing is budgeting
Budgeting your housing needs (rent, electricity, telephone), transportation costs (car and train/tram), insurance (health and other), food, and clothing should not be more than 55% of your monthly income. Your budget for taxes in Switzerland should be about 20% and 15% for vacations.
That should leave you 10% for saving, and if your emergency fund is safe, that 10% can be invested.
The question is, how much money do you have to have to start investing. Ten years ago, this question was more important than today. Ten years ago, the fees for investing were so high that it was impossible for people with less savings to start investing. Today, bank and brokerage fees have come down so far that investing small amounts of money is possible, interesting, and possibly essential. With the state of federal and occuptional pension systems, saving for retirement has become not only beneficial but rather a necessity.
To calculate how much you need to start investing, we must look at the fees first. Many of the fees are flat rates, which means with small investments, the fees eat up any returns. For example, to own stocks, you must have a custody account. A custody account is like a bank account, but its fees are higher. In Switzerland on average a custody account minimum fee is 60 CHF per year. That means if you are “only” investing 1’000 CHF, you must make a return of 6% just to cover your custody fee. This is not an interesting investment. In addition to a custody fee, banks and brokerages charge transaction and inactivity fees.
So how much money do you have to have to start investing?
From your side, it is the amount that you can afford to keep invested for a longer period. Yes, there is a possibility to lose some money, but be aware you are currently losing money on your bank account due to inflation and banking fees. At a discount brokerage in Switzerland and they must be compared, it is possible and beneficial to start investing if you can save 100 CHF per month. It would be interesting to buy one title (shares from one company) every 3 months if the fees are low enough. With this system, you can build up a diversified portfolio of 16 titles in 4 years.
An example, for a 300 CHF investment, the total fees in Switzerland should not be more than 8.75 CHF. 8.75 is 2.9% of 300. Half of the biggest companies in Switzerland pay a higher dividend.
In summation, the minimum to invest is based on two considerations:
What is the amount of money you can afford to invest and forgo access to for 10 years;
How much is necessary to compensate for the fees?
On yeekatee, you find more examples of investing small sums. It is a perfect platform to get the right information for a good start.
Written by Therese Faessler, Founder of invested.ch and SFTA Head of Financial Literacy