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Financial Planning Index Funds and Stocks Post

What is a Sparplan? What is Mr A really doing with his Sparplan?

Sparplan (I am so tempted to add a meme on this is SPARtaa..) is the way out of automatically managing your investments each month. It is an equivalent of a SIP (Systematic Investment Plan) if you are an Indian investor.

….when I login to my bank account, I notice two options, geldsparplan and wertpapiersparplan. What is the difference?

I use comdirect, and they have these two options, the main difference is:

  • geldsparplan – This savings plan simply takes money from your account and deposits into a Tagesgeld account which earns a whopping 0.01% interest (as of this morning) p.a. In other words, not worth it.
  • wertpapiersparplan – This savings plan is the one we need, we can setup a monthly investment amount and usually declare ETFs or even stocks to invest in each month.

….how much do I invest in a Sparplan? How much does Mr A invest each month?

As of this morning, I am investing 1098 EUR into my sparplan each month. This is mostly focused on diversified ETFs and 1 tiny piece of Amazon stock. I will write more about this in Portfolio page soon.

Let my number not scare you, I started really slow. I was investing less than 300 EUR/month an year ago and less than 200 EUR/month 18 months ago (2018).

As I have mentioned before and might do so again, we have to start with small steps and get comfortable. It took me a while to get comfortable with the idea of investing, and I started really slowly. I had never invested in Germany and had been programmed to be more cautious.

Can’t guarantee the numbers, but you catch the drift!

You can start with even 25 EURs/month, then and grow from there.

….what do I invest in? What are the pitfalls?

Picking your investments is a massive undertaking, but has been extensively covered in reddit.com/r/finanzen or on frugalisten.de forums.

The key pitfalls are, all investments carry risk, transaction costs charged by your depot account per transaction and TER (annual expenses) must be considered very carefully.

….but can I not simply buy ETFs each month on the go and not bother with a sparplan?

Yes, of course you can, or you can automate it and forget about it. This is the whole premise of the famous book, The Automatic Millionaire. If you really look at it, it just makes sense, one automated step which simplifies your steps to your Financial Independence.

It makes it easier for me to plan it and worry about one less then thing to do each month.

If you have more questions on sparplan, then write into the comments section.

Categories
Financial Planning Index Funds and Stocks

Will the next recession be the end of Financial Independence movement?

I had reserved my second blog post for sharing more about me and where am I starting from in my Financial Independence journey. However, an event much more important has occurred which may impact almost everyone planning for their FI.

Last week on Friday, the long term interest rates on US Bonds fell lower than the short term interest rates. This event, has been a precurser, to every recession in US in the last 60 years. Naturally, this has triggered a recession risk with analysts guessing that a recession is imminent in the next 6-24 months (thats a very wide range of time!!).

As the warning has been triggered, there is already a slight panic and selloff has intensified, across the globe. At the same time some academics and analysts are trying to cull the panic to say that this has not happened consistently for a longer period of time and may not mean a recession is near.

In any case, lets assume that the predictor will hold and we are heading towards the cliff. This means that the market should head for a correction of 20-40% at its worst. This will dip the stocks or index funds invested by this community of Financial Independence aspirants.

Lets look at the illustration below, the VTI was trading at its highest in 2007 (just before the last recession at 74.5 US$ and it fell down to 46.11 US$ on 17 October 2008, and then further to 34.06 US$ on 6 March, 2009. It then needed almost 5 years to reach its old heights in 2013.

The question now is, is it a good time to sell and make profits OR it is just wise to stay on track and not blink as we hit the iceberg?

Its impossible to predict when will the recession risk will or how deep will it be. In the end one needs to think on our feet and act accordingly.

Cheers!