It is almost impossible to find the ideal time to buy shares. A share savings plan is a demonstrably better alternative: Regular purchases give us an excellent average price.
We explain when this approach makes sense, what advantages and disadvantages it offers and what alternatives to a share savings plan are available.
The most important in a nutshell
- With a share savings plan, you acquire securities automatically at fixed intervals
- This method is particularly suitable for long-term investments in stocks you are convinced of
- Statistically speaking, they achieve a very good average price
- A cash-secured put is a possible alternative that can also deliver a better purchase price
How a share savings plan works
Many retailers are trying to Trading signals or the Chart analysis to find the best time to buy and sell shares. But the simple truth is: it is almost impossible to pick the ideal moment! So it's no wonder that more than 90 % of active traders make long-term losses.
If, on the other hand, you want to build up long-term assets, you have a much better tool at hand: the share savings plan. It is a concept that is as simple as it is ingenious:
- With a savings plan, you buy shares, ETFs or funds at fixed intervals and for a fixed amount.
- Execution is carried out automatically by your broker without you having to do anything.
- Savings plans with monthly execution are very popular, but other cycles such as bi-weekly, quarterly and more are possible.
- Sometimes you will find a particularly low price, other times perhaps a very high one.
- Over a longer period of time, this results in a very attractive average.
If you use a share savings plan over a longer period of time, you will get a very good average price. Investors who try to find the ideal time to buy cannot keep up with this: Statistically speaking, they pay much more for their securities than savings plan users!
The cost-average effect is what makes the share savings plan so exciting
Anyone who uses a share savings plan almost always gets a better price than a person who invests a large amount on a one-off basis. The reason for this is the so-called cost-average effect, which is achieved by buying Fractions of shares in combination with fluctuating prices.
- A savings plan is executed at a fixed amount and time.
- How many securities you receive depends on the current price.
- You receive fewer company shares during high periods, but more during low periods.
Example:
You use a share savings plan to buy PayPal securities for 100 euros on the first trading day of each month.
- On August 1, the share price is €75. Your broker executes the order automatically and you acquire 1.33 shares in Paypal (€ 100 divided by € 75).
- By September 1, the price had fallen to 63 euros. With automatic execution, you now receive 1.58 securities.
- On October 1, the share price is 58 euros and you receive 1.72 shares.
- On November 1, the price fell to 50 euros, so you can now buy 2 whole shares for the 100 euros in your savings plan.
- On December 1, the price rose again to 60 euros. You now receive 1.66 securities as a result of the automatic execution.
In total, you have received 8.29 PayPal shares for an average price of 60 euros over the five months through the savings plan.
If you had instead made a one-off purchase with the same amount on August 1, you would have acquired only 6.66 shares at a price of 75 euros each. In this case, your advantage from using a savings plan is 1.63 PayPal shares or 24 percent of the total position size!
When does a share savings plan make sense?
A share savings plan offers a considerable price advantage, but is not a magical solution that automatically guarantees high returns! Whether it is suitable for you depends on your goals and circumstances.
The automatic purchase is worthwhile in these cases:
- High-quality share: You are convinced by a share and want to invest in the company for the long term. You should therefore first Fundamental analysis and only invest in a savings plan if you expect the security to perform well.
- Long-term investment: Your planned investment horizon is several months or ideally years. You benefit from the cost-average effect, especially with long terms.
- For emotional investors: Are you prone to emotional decisions and knee-jerk reactions? A savings plan works without you having to do anything. According to the motto "out of sight, out of mind", you reduce the likelihood of panic selling and other destructive behavior.
- Regular payments: If you have regular capital available (for example, a portion of your salary each month), a share savings plan is an ideal solution for successful wealth accumulation.
Conversely, the savings plan is unsuitable in the following situations:
- You want to trade actively: If you do not want to hold a security for the long term, but want to trade in the short/medium term, this method does not make sense. If you are already planning to sell the share, a savings plan is less worthwhile.
- Not a high-quality company: Although the automatic purchase can improve your entry price, if prices are permanently on a downward trend, you will make losses despite the savings plan. You should therefore only use it for high-quality shares!
- A lot of capital: If you want to invest a large amount of money, a savings plan is too slow. Your capital lies around unused and does not generate a return. This is known as "cash drag": Your overall result decreases!
- Looking for a risk-free investment: A share savings plan can improve your purchase price and thus increase your return. However, the fundamental risk of all stock market transactions still remains!
A savings plan is particularly suitable for continuous asset accumulation. In combination with low-volatility securities, Blue chip shares or high-dividend shares exciting opportunities arise.
The possibility of directly reinvesting profit distributions has made the combination of dividend strategies and share savings plans very popular. Another popular variant: automatic purchases for your own children, often in a separate depot.
What you should bear in mind
In principle, the same rules and instructions apply to a share savings plan as to the individual purchase of securities, as well as a few other special features. Mistakes and carelessness can reduce your return or even lead to losses.
1. Choose the right trading venue
The right trading venue plays a major role. Securities are almost always cheaper on their "home exchange" thanks to better spreads. This price advantage quickly pays off with savings plans, as you save again with every execution (e.g. every month).
Unfortunately, most brokers only allow you to trade on a very limited number of exchanges. Some, seemingly particularly inexpensive service providers even only offer a single trading venue!
Other dubious brokers offer several stock exchanges but charge additional fees. It is therefore best to check the costs of a share savings plan at the desired trading venue before you open a securities account.
2. Check costs
Share savings plans are popular enticements that are often advertised as "free". Many brokers actually waive the usual fees, but charge hidden surcharges elsewhere. Here too, it is advisable to check carefully before deciding on a provider.
3. Check meaningfulness
Savings plans are very popular investment vehicles that are ideal for many investors. However, they are not a perfect solution! Typical scenarios in which you should do without a share savings plan are, for example:
- You have a very large amount of capital at your disposalthat you want to invest in shares. In this case, for example, it would be more lucrative to invest in Cash Secured Put Trade options and thus achieve a high additional return when buying shares.
- They only have a very small amount of money at their disposal. Some brokers offer the option of executing a share savings plan for as little as €1. However, such prices do not make sense in practice.
- You are not convinced by the share you are buying in the savings plan. A share savings plan should not be an end in itself: only buy securities that you trust and if you cannot find any attractive securities at the moment, it is better to do without them.
- You lack diversification. With a share savings plan, you only acquire shares in a single company. And even an ETF savings plan only allows you to invest in one exchange-traded fund. Equity portfolio. If your portfolio is not sufficiently diversified, you should abandon your savings plan or choose another security until you have achieved sufficient diversification.
4. Pay attention to the selection
The stock selection of individual brokers is a tiresome topic for many investors: not all securities are available everywhere! While you have access to over a million securities with CapTrader, for example, you will often only find a few hundred with other service providers.
Here, too, you should make sure you make the right choice before you buy a Open an account.
Our tip: How to use a share savings plan sensibly!
An important advantage of savings plans is the reliable, continuous execution, which is less susceptible to emotional interventions. However, this does not mean that you cannot change the automatic transactions!
Our tip is therefore: stay flexible and adjust your savings plans regularly.
- There is nothing to stop you increasing your savings amount after a salary increase, for example, or reducing it in the event of financial difficulties.
- The only thing that is not recommended is to cancel your share savings plan completely: Once the standing order has been deleted, most people find it very difficult to start again. In this case, it is better to reduce the savings amount.
- Another option is to increase during attractive market phases. Depending on how Bull and bear In the event that the stock market does not behave as expected, a higher savings amount may be temporarily worthwhile.
- This is particularly the case if the entire sector or the entire market is in a downward trend. When a recovery sets in, you benefit from the rising prices of your additional shares.
- However, if only "your company" is affected, it is not advisable to invest even more now. Instead, you should check the key figures again and make sure that a share savings plan for this company still makes sense.
Your broker promises you free execution of share savings plans? You can take advantage of this offer and make free one-off purchases! Simply create a savings plan for the share or ETF at the desired price. After the first execution, delete the plan again. This way you can buy free of charge.
Share savings plan advantages and disadvantages
Savings plans for shares are currently very popular due to their many advantages. However, there are also some problems that you should be aware of. Here is an overview of the most important advantages and disadvantages:
| Advantages | Disadvantages |
| Cost-average effect ensures very good average prices | Price advantage is only important for quality stocks that will gain in the long term |
| Execution is free or very cheap with many providers | There may be hidden costs |
| Simplifies asset accumulation through structured, passive investments | Success depends on the selected shares and is not guaranteed |
| Large selection of shares, ETFs and funds (depending on provider) | Lack of diversification, as investments are only ever made in one product |
| Alternatives such as cash-secured puts can generate higher returns |
Video: Set up share and ETF savings plans with CapTrader
Possible alternatives and additions
Depending on your personal goals and financial circumstances, a share savings plan may not be the ideal solution or other forms of investment may produce better results. We would therefore like to introduce you to two alternatives or supplements:
1. ETF savings plans
ETFs can also be purchased as a savings plan. They have other advantages and disadvantages compared to a share savings plan.
- An exchange traded fund contains several assets. By investing in such ETFs, you acquire shares in the entire content and thus achieve better diversification.
- Equity ETFs are the best-known examples, but also compilations of cryptocurrencies, short-term bonds, raw materials and more are possible. D
- This is a very advantageous combination for long-term investors: the good diversification of the ETFs reduces the risk, while the execution as a savings plan automates the investment.
An ETF savings plan can therefore be considered as an alternative or supplement to a share savings plan: you can use a broad-based ETF to create a solid basis for asset accumulation. The classic "FTSE All World", for example, which consists of shares in medium-sized and large companies from industrialized nations, is suitable for this purpose.
A savings plan for individual shares can then be used to set priorities or optimize your portfolio. One (or more) share savings plan is therefore based on the ETF savings plan and offers extended strategic options.
2. cash secured put
If you want to increase your return when you buy an asset, the Cash Secured Put ideally suited. It is an option strategy that is considered particularly beginner-friendly. You sell a put option for a share that you would like to add to your portfolio.
- The function is quickly explained: as the subscriber ("writer") of such an option, you undertake to purchase the security at the agreed price.
- The buyer of the option in turn acquires the right to sell his shares to you at the agreed price
- The buyer has a right of choice and does not have to carry out the transaction if the deal would not be lucrative for him.
- You yourself have no right of choice and must follow the decision of the other party. In return, however, you will receive a premium payment as compensation, which you may keep in any case.
If the share price at the end of the term is higher than the price you agreed in the option, the transaction expires. In this case, the buyer could achieve a better price on the stock exchange and has no reason to exercise the contract. Although you have not received the desired shares, you have earned a premium.
However, if the price of the security falls below the price you offered, the buyer will exercise his right and sell the shares to you at the higher price. You have now bought the shares, albeit at a higher price than on the stock exchange. You can also keep the premium.
Both scenarios are advantageous for you:
- Since you want to hold the security for the long term anyway, the slightly higher price is not a major problem. The additional return also improves the purchase price.
- If the option is not exercised, you have made a profit in the form of the premium without losing any capital. You can now repeat the process.
This makes the Cash Secured Put an excellent way to reduce the effective purchase price of shares (via the premium received). In many cases, this price advantage exceeds the advantage you get from a share savings plan!
In addition, an executed cash secured put is an ideal starting point for the so-called "wheel strategy". With this popular and beginner-friendly approach, you can generate an attractive additional return with comparatively little effort. Professionals calculate with around 12 % per year!
We have provided further information on how to get started successfully in options trading in our article "Optionen Handeln" summarized for you.
Conclusion: Share savings plan for wealth accumulation with a low entry price
A share savings plan is a very simple concept with an enormous impact: instead of investing money in securities once, you use a recurring purchase. At regular intervals (for example, at the beginning of each month), your broker will buy the desired amount of shares.
As the amount always remains the same - provided you do not make any changes - this results in a strong cost-average effect. If the price of the share rises, you buy less at the time of execution; if the price falls, you receive more securities.
Overall, this results in a very good average price that can significantly outperform a one-off purchase. However, a longer term is a prerequisite for such a savings plan, as only then can it realize its full potential.
Your duty of care also remains: You must ensure that it is a lucrative company with good future prospects, as only then will the long-term investment be worthwhile. The typical equity risk is therefore still present.
This form of investment is suitable for the long-term expansion of your Equity portfoliosbut is less suitable for short-term trading. In combination with ETF savings plans, the automatic purchase of shares is an opportunity for reliable asset accumulation without great expense.
For investors who want to make buying shares even more lucrative, the Cash Secured Put is ideal: here you use options and achieve an attractive additional income that can quickly develop into a double-digit annual return.
Don't forget: Once the securities are in your custody account, you should take care of the appropriate protection against crises and losses! We have summarized the most important tips in our article "Hedging shares" summarized.
