With these, you invest a small amount in an ETF every month

Bond ETF Bond ETF is another word for a bond ETF. The word "pension" is just a different term for bond, so it has nothing to do with your retirement provision. In this context, pension means a regular payment – here an interest payment for lending the money.

What are the benefits of a bond ETF?

Bond ETFs have a number of advantages. The most important at a glance:

Risk: Since a bond ETF invests in all bonds in an index, it is broadly diversified. This reduces the risk of losing money if the price of a security crashes. The same risk requirements apply to bond ETFs as to individual bonds (see info box below). Costs: Since, as with all ETFs, you do not have to pay a fund manager to control the fund, bond ETFs are significantly cheaper than actively managed bond funds (see below). Handy denominations: If you want to buy individual bonds, you usually have to invest 1,000 euros or more. The reason: Bonds are only issued in a certain denomination, the face value. In a bond ETF, on the other hand, you can invest small sums – sometimes from 50 euros.

Bonds are generally considered a safe form of investment because their prices fluctuate less than, say, equity prices. They also generate a fixed interest rate. At the moment, however, they are hardly generating any income due to the low level of interest rates. In addition, the following applies to bonds: the risk largely depends on the creditworthiness, i.e. the solvency of a country or company. This is determined by independent rating agencies. With a lower credit rating, the interest you get on a bond also increases. At the same time, however, the risk of losing your money also increases.

Why does a bond ETF price rise when interest rates fall?

As with bonds, there is also a special pricing logic for bond ETFs. This is because investor demand for bonds – and thus the bond price – is influenced by what is known as the market interest rate. What is meant by this is the amount of interest that the banks offer. The level of the market interest rate is based on the key rate of the central bank. In the EU this is the European Central Bank (ECB).

When interest rates rise in the market, the interest rates on newly issued bonds go up. Investors would then prefer to invest their money in new bonds with the higher interest rate – and not in older bonds that were issued earlier and with a lower interest rate. The result: the price of older bonds falls – and so does that of the bond ETF.

Conversely, the same logic applies: if the market interest rate falls, the market price of older bonds rises. This also increases the price of the bond ETF.

Bond ETF or bond fund? What is better?

To decide between a bond ETF or an annuity fund, you should know the exact difference. A bond fund is a mutual fund that actively invests in bonds. So here is a fund manager who specifically selects the bonds in which he invests the money.

Pension funds: what you should know about it

A bond ETF, on the other hand, acts passively – a computer algorithm reproduces a bond index. This is why a bond ETF is usually much cheaper. There are no fund manager costs.

When it comes to performance – and therefore returns – the following applies: a bond ETF is only as good as the bond index. But in most cases a fund manager does not manage to beat the development of an index price.

It is therefore not possible to say in general whether a bond ETF or a bond fund is better. The decision largely depends on what type of investing you are more comfortable with – and how much fees you are willing to pay.

What should I look out for when buying a bond ETF?

When investing in a bond ETF, there are several things to look out for. The most important at a glance:

Cost: How expensive is the investment? Here you should pay attention to the total expense ratio, the so-called "Total expense ratio", short "TER". For bond ETFs, this is usually 0.1 and 0.5 percent of the investment amount per year. Index: Which index does the bond ETF track? The underlying index is decisive for how high the risk of the investment is. If an index only includes government bonds from emerging countries, there is a higher risk that they will no longer be able to service the bond. In that case you could lose your money. Price performance: How has an ETF performed in the past? You cannot draw any direct conclusions from this for future performance – and thus your income. The past price development can, however, offer a point of reference for the investment decision. Type of distribution: Should the interest be paid out or reinvested directly? In the first case, you should invest in what is known as a distributing bond ETF. Here, however, you do not benefit as much from the compound interest effect.argumentative essay on childhood obesity Instead, the interest payments can be invested again immediately. In this case, you should invest in a so-called accumulation ETF. Sources used: Own researchFinanztestde.bergfuerst.comfitformoney.de other sources show less sources

On the stock market, the following applies: the longer you invest your money, the better. Historical data exclusively available to t-online show why you can hardly make any losses.

Speculate, gamble, bet: there is still a widespread belief that the stock market is all about quick money. About money that just melted away like won if you don’t know a lot about trading stocks.

But is that actually true? Is the risk of loss really that great when investing in stocks? Or is it not possible to build up capital on the stock market in the long term?

A new study by the trading platform Wikifolio, which is available exclusively to t-online, provides answers – at least with a view to the past. The risk of losing all of your money fell to almost zero as the investment period increased. The most important requirement: a broad-based equity portfolio in which you regularly invest money through a savings plan.

Please note: You cannot predict future price developments from the previous course. How stock market prices develop depends on numerous factors, which is why the course cannot be foreseen.

For the study, Wikifolio created a savings plan simulation based on historical price developments of the German share index (Dax 30) and the larger US index S.&P 500 created since 1970. The data of the Dax, which was only founded in 1988, is partially calculated back. The much older S&P 500 is the actual price development. The study shows how likely it is to have earned a certain percentage of income after a fixed investment period.

The most important results at a glance:

(function () {var dyCont = document.getElementById (‘nativendo-sidebar’); if (typeof T == U || T.RecAdInactive) {// remove container dyCont.parentNode.removeChild (dyCont);}}) ( ); .toi-sh-breaker {position: relative; width: 920px; left: -155px; height: 275px; border: 1px solid #dcdcdc; border-width: 1px 0; padding: 12px 0 8px; margin: 32px 0; clear: both; } .toi-sh-breaker: before {content: ‘DISPLAY’; position: absolute; top: -8px; right: 28px; background: white; color: # 000; font-size: 10px; display: inline block; padding: 2px 10px; } .toi-sh-breaker .Tts {width: 300px;} .toi-sh-breaker # nativendo-sidebar {width: 300px; clear: none; float: left; margin-right: 10px;} .toi-sh-breaker > div: last-of-type {width: 300px;} The longer you invest, the less likely it is that you will lose money investing it. The longer you invest your money, the less important the entry and exit times for investments. The wider As you diversify your investment, the lower your risk of losing money.

Specifically, using the Dax as an example, this means for any five-year period since 1970: The probability that you would have made losses in the past with a share savings plan is 12.9 percent – a total loss was even impossible:

!function () {"use strict"; window.addEventListener ("message", (function (a) {if (void 0! == a.data ["datawrapper-height"]) for (var e in a.data ["datawrapper-height"]) {var t = document.getElementById ("datawrapper-chart-"+ e) || document.querySelector ("iframe [src * = ‘"+ e +"’]"); t&&(t.style.height = a.data ["datawrapper-height"] [e] +"px")}}))} ();

If you had invested 15 years instead of five, the probability of loss was only 0.2 percent, as the following graphic shows:

!function () {"use strict"; window.addEventListener ("message", (function (a) {if (void 0! == a.data ["datawrapper-height"]) for (var e in a.data ["datawrapper-height"]) {var t = document.getElementById ("datawrapper-chart-"+ e) || document.querySelector ("iframe [src * = ‘"+ e +"’]"); t&&(t.style.height = a.data ["datawrapper-height"] [e] +"px")}}))} ();

"It looks even better with the even wider S.&P 500 off", explains Wikifolio boss Andreas Kern. "Anyone who has regularly invested money in the 500 most important US stocks with a savings plan for any five years has only made a loss with a probability of 9.6 percent."

!function () {"use strict"; window.addEventListener ("message", (function (a) {if (void 0! == a.data ["datawrapper-height"]) for (var e in a.data ["datawrapper-height"]) {var t = document.getElementById ("datawrapper-chart-"+ e) || document.querySelector ("iframe [src * = ‘"+ e +"’]"); t&&(t.style.height = a.data ["datawrapper-height"] [e] +"px")}}))} ();

In the 15-year period, the risk of loss in the S&P 500 with just under 0.5 percent, similarly low as the Dax. Conversely, however, it was much more likely that a savings plan would generate higher profits in any 15 years.

!function () {"use strict"; window.addEventListener ("message", (function (a) {if (void 0! == a.data ["datawrapper-height"]) for (var e in a.data ["datawrapper-height"]) {var t = document.getElementById ("datawrapper-chart-"+ e) || document.querySelector ("iframe [src * = ‘"+ e +"’]"); t&&(t.style.height = a.data ["datawrapper-height"] [e] +"px")}}))} ();

Invest broadly with index funds

Sebastian Külps, head of Germany at asset manager Vanguard, also knows how important a broad equity portfolio is: "Many people lack a basic understanding of stocks: if you invest widely, you minimize your risks."

The easiest way to do this is with a so-called ETF, also called an index fund, which experts from the consumer protection center recommend. This replicates an entire stock index. You therefore invest in all companies that are listed in the index. In the case of the Dax, that would be companies like SAP, BMW or Henkel; at the S&P 500 are the largest companies Apple, Amazon and Alphabet (Google).

Index Funds: Why ETFs Are Such a Popular Form of InvestingDividend ETFs: How You Can Capitalize on Company Profits

"ETFs are indeed an investment for the people, for each of us"says the economist and bestselling author Gerd Kommer, who as "ETF Pope" is known. Direct banks on the Internet offer ETF savings plans for this purpose. With these, you invest a small amount in an ETF every month. You can often control the savings plan with your smartphone or tablet.

Returns with ETFs are handsome

The yields that could be achieved in this way are impressive. An example based on the Wikifolio calculations: We assume that in any 15-year period between 1970 and 2020 you would have invested 100 euros in an ETF on the S&P 500 created.

In that case, there was only a 0.5 percent chance that you would have hit a period in which you would have made losses. Instead, in the majority of the cases, 39.7 percent of all possible time frames, you would have had a total return of 200 to 500 percent. That would be an average annual return of 7.6 to 12.7 percent.

In absolute numbers, you would have earned between 14,886 euros and 32,593 euros in income alone. Together with your deposits of 18,000 euros, you would have made a profit of almost 33,000 or more than 50,500 euros in the end.

The compound interest effect ensures high yields

"You can’t really go wrong for 20, 30, 40 or 50 years"says Kommer too. The reason for this development is the so-called compound interest effect. In short: your invested money increases all the more when income that was previously generated is added and immediately reinvested. The longer the investment period, the more the effect pays off.

This can also be seen from the Wikifolio calculation: If you had paid into a savings plan in any 40-year period between 1970 and 2020, you would have in most cases – 97.7 percent of the possible periods – a total return of more than 1,000 percent. That corresponds to an annual return of more than 6 percent.

Or expressed in absolute numbers: If you had invested 100 euros for 40 years, you would have deposited a total of 48,000 euros. In the end, however, a significantly higher sum comes out: 200,318 euros – of which more than 150,000 euros in income.

Regarding the methodology: The simulation is based on the average annual returns. There are periods in which the actual returns can differ greatly from the average annual return, which can also have an impact on the compound interest effect. The costs for the savings plan, possible taxes, as well as inflation and currency effects were not taken into account.

Get on sooner rather than later

A central finding of the analysis: The exact time of entry on the stock exchange is almost irrelevant in the long term. The only important thing is to persevere when investing. However, you should be a little more careful when you exit:

Income and security: this is how you invest your money with an ETF savings plan Passive investing: How much return do ETFs bring? Index classic: what’s really in the MSCI World

Anyone who depends on the money invested shortly after the sudden collapse of the markets, for example because retirement is approaching, can also be unlucky. It can therefore be worthwhile to gradually sell your own portfolio shortly before such a point in time.

Nevertheless, investors should not be afraid of such scenarios, as Vanguard manager Külps also emphasizes. "Stocks have a risk"said Külps in an interview with t-online. "But you can benefit from this over a long period of time – with a higher return." Kern adds: "Stocks are the most democratic investment there is." Nobody therefore has to be afraid of it.

Sources used: Own researchData from WikifolioConversation with Andreas KernConversation with Gerd KommerConversation with Sebastian KülpsAdditional sourcesShow less sources

If you save an ETF or other fund that reinvested the income straight away, a notional tax is due every year.