Since I started investing in the stock market, I often hear people around me talk about distrust of the stock markets. When I say that I buy shares, people become skeptical, not to say critical. I can understand their concerns given the bad surprises that the financial markets have given us since 2000. But the risk is not always where we think it is. The argument that comes up again and again is more or less the following: "I prefer to leave my money in my savings account, that way I can sleep soundly". Okay, so for fun, let's just see what happens.
Let's say you opened an account of this type in 1996. To keep it simple, let's say that you received an inheritance of 10,000 francs from your grandmother, that you invested it and that you didn't touch it again (no deposits or withdrawals). 15 years later, at the end of 2010, according to the rates applied during this period, you would have earned 2,067 francs in interest. It's not huge, but you didn't worry about it, and you're still a little richer. Although...
We forgot about the price increase. The 10,000 francs you received in 1996 are not worth as much anymore! Prices have gone up, insurance premiums and rent too, as for your salary... it should have done the same. In total during the same period, the increase in prices amounted to 13%, which is still correct, thanks to the legendary prudence of the Swiss National Bank. So, your real gain is no longer 2,067 francs, but 680 francs. Or 45 CHF per year... from a starting capital of 10,000 francs, that's already less glorious. Not to mention you still had to pay bank charges and taxes on the interest earned. In the end, if you have not lost money, you can be happy. Worse, if you had invested this money only from 2004, you would have lost money for sure (in real terms)!
| Year | Price increase (%) | Savings account (%) | Real gain (%) |
| 1996 | 0.8 | 2.48 | 1.68 |
| 1997 | 0.5 | 1.89 | 1.39 |
| 1998 | 0 | 1.64 | 1.64 |
| 1999 | 0.8 | 1.46 | 0.66 |
| 2000 | 1.6 | 1.88 | 0.28 |
| 2001 | 1 | 1.64 | 0.64 |
| 2002 | 0.6 | 1.35 | 0.75 |
| 2003 | 0.6 | 0.75 | 0.15 |
| 2004 | 0.8 | 0.72 | -0.08 |
| 2005 | 1.2 | 0.65 | -0.55 |
| 2006 | 1.1 | 0.75 | -0.35 |
| 2007 | 0.7 | 1.06 | 0.36 |
| 2008 | 2.4 | 1.18 | -1.22 |
| 2009 | -0.5 | 0.8 | 1.30 |
| 2010 | 0.7 | 0.68 | -0.02 |
| Cumul | 12.99 | 20.67 | 6.80 |
So when you think about it, you already sleep less soundly. But hey, at least we wouldn't have lost everything on the stock market! Oh yeah, what would have happened if we had invested in the Swiss stock market during the same period (1996-2010)?
The SPI (Swiss Performance Index), which groups together all the shares listed on the SIX Swiss Exchange, shows during the same period a total profitability (with dividends) of 166%! This means that the 10,000 francs inherited from your grandmother would have earned you 16,660 CHF. You would therefore have a total capital of 26,660 francs today. Of course, you still have to subtract 1,300 CHF for the loss of purchasing power, and pay some bank charges and taxes on dividends (and only dividends, not on capital gains!). But even with these deductions, and even if you had considered 2011, which was a mediocre year on the financial markets, you would come away with a balance sheet that is not comparable to that of a savings account. And yet the period observed above is far from ideal for the stock market...
Now I'm going to deliver the final blow. There is one last point that is rarely discussed and it's even surprising when you think about it. Why do you think Swiss millionaires have so many securities deposited with their banks? Just the lure of gain? There is certainly a bit of that, yes, but that's not all.
Until the collapse of Lehman Brothers in 2008, the big banks were believed to be safe from bankruptcy. But since then, this risk has been the talk of the town. To calm things down, the deposit guarantee had to be increased to 100,000 francs. The Federal Banking Act thus provides that deposits made with a bank, in the event of its bankruptcy, are privileged, insofar as they are honoured first from the assets of the bankrupt bank, before the claims of other non-privileged creditors. The deposit guarantee system for banks and securities dealers guarantees the repayment of deposits in the event of forced liquidation or protective measures. If the assets of the bank in question are not sufficient to pay all the deposits, their payment is guaranteed by the other banks.
All this is not very clear... we are talking about privileged deposits and payment guaranteed by other banks. One can wonder what would happen in the event of a systemic bankruptcy, as is currently being discussed. If the entire financial sector is doing badly, not to mention the States that no longer have the means to help it, this guarantee will be nipped in the bud. And then in the best case scenario, it is limited to 100,000 francs. For many of us that would be enough, but for a millionaire it is more boring, even by placing his money in several banks.
This is where it gets interesting because so far we have only talked about bank deposits. Unlike the latter, the deposited assets (e.g. shares, collective investment units and other securities) are the property of the client. In the event of a bank failure, they are immediately and completely withdrawn from the estate, i.e. they do not fall into the bankruptcy estate but are returned to the customers. This regulation concerns all deposited values, but also precious metals kept at the bank and owned by the customer.
In conclusion, as long as you diversify your investments, Investing in the stock market is less risky and more profitable than putting your money in a savings account.. Just to sleep soundly.
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Once again, QED. Very good article, as usual! Thank you for your involvement in writing this blog.
Thank you for your comment and good luck to you.
Thank you for this calculation which caught my attention.
First of all, how could an investor with SFr.10,000 access the performance of the SPI, which requires investing in 230 different stocks in a weighted manner, without going through a fund managed by a financial institution which would have largely helped itself to the capital gains in the process, and without losing out on brokerage fees which would be far from negligible if he went there directly – I'm not even sure that online trading was possible in 1996 in Switzerland?
This investor actually had another option that minimized the risk (at least at the time), indirectly using the financial management of professionals but for free, and which would have earned him between SFr. 16,000 and 20,000 depending on his marginal tax rate, net of investment costs and not taxed on wealth or interest (unlike savings accounts)...
I simply assume that when his grandmother died, our investor was still active and therefore probably employed, and that he had the possibility of buying back SFr.10,000 from his pension fund in 1996. Of course, withdrawals are limited, but to build up good savings for housing or retirement, it was ideal! And with a marginal tax rate of 30% (I think from memory that it goes up to 45%), SFr. 3,000 in tax savings are made on the buyback… to be reinvested (and I thought until recently that it was capped, but see Hildebrand…)
Finally, if our investor had had the opportunity to combine this sum with his own savings to buy real estate, he would have done much better. +50 on average in Switzerland, +100% (doubling of the stake!) on the Lake Geneva region from 2001 to 2011 alone.
All of this can of course be combined... that's what motivates me to wander around here to understand the different possible investments (thank you for this very educational site)
Small correction (I forgot the increase in cost in my too quick calculation with the LPP rates since 1996) – there remains roughly 14,000 base + the tax saving which can be estimated at between 1,000 and 5,000 francs roughly.
Hello Capucine and thank you for this very comprehensive additional information.
I could have been more specific about the method, but the purpose of the article was intended to be a bit more provocative about the savings account. Indeed, other solutions exist, such as the real estate you mentioned.
ETFs did not exist in 1996 to my knowledge but they could currently constitute one of the possibilities for investing in an index at lower costs (brokerage and management).
Regarding the pension fund, the buy-back is possible, but to my knowledge it is limited to the possibly incomplete insurance coverage. However, it is indeed tax deductible. However, there is confusion, or I do not understand well, when you talk about buy-back, then withdrawal. The buy-back is deductible, but the withdrawal is taxed. Can you clarify please?
Can you also explain what you mean by using "indirectly professional financial management, but for free".
Thanks again for your quality comment.
A great post against the detractors of the Stock Market.
Moreover, the French government does not like the stock market because it will soon adopt a tax on financial transactions only on purchases of securities or shares whose head office is in France.
Thank you for your comment.
I don't know what to think about this tax... the intention may be good, because it is clear that it is the hedge funds, the irresponsible banks and their traders disconnected from any reality who are responsible for the financial, economic and social slump in which we live. They must therefore pay for it. Finally for long-term investors this tax has no impact because their movements are small.
But on the other hand, I tell myself that as long as all states do not establish it, the sharks of finance will always find a way not to pay it. And then, also, I think that the states themselves must take responsibility. It is not by establishing more taxes, by hunting down witches and so-called tax havens that they will solve their problems. We must start by sweeping the upper echelons of the state, there are too many people who are paid to do nothing, or worse, to do stupid things...