If you’re looking to invest a small amount, the choice of investment options is straightforward: shares, bonds, funds, gold or the traditional savings account. However, if you have a million francs at your disposal, your range of options expands. You can put your money into a broadly diversified securities custody account, invest in investment properties or make a tax-saving payment into a pension fund. But what are the advantages and disadvantages of these options?

Voluntary payments into your pension fund

A voluntary payment into your pension fund has many advantages: it improves your pension benefits and saves on taxes. However, there must first be the potential for buying additional pension benefits, and this is the case only if contributions paid into the pension fund in the past are no longer in line with your current income situation.

Potential for payments may be in place

• If you have received salary increases over the course of your career
• If you were late in starting your career
• If you have had interruptions to your income

In all of these cases, you can fill the resulting contribution gap and build up your pension fund capital. The possible purchase amount is usually shown on your pension fund statement.

However, there are restrictions

• If you have made an anticipated withdrawal (for example, for encouragement of home ownership), you must repay it in full before you can make any additional purchases.
• If you have vested benefits assets from previous employment or have increased 3a assets from self-employment at your disposal, the payment options are limited.
• If you have moved to Switzerland from abroad, there are also restrictions.

Self-employed people who are responsible for their own pension fund solution may be able to create additional purchasing potential by changing their pension plan.

In terms of security, voluntary payments into a pension fund offer advantages. However, the possibilities are limited, and there are a number of points you should consider carefully before investing:

• How is interest paid on the purchases? 
• What pension conversion rate applies to the purchases?
• Will the amount be allocated to the mandatory or non-mandatory portion of your retirement assets?
• How “safe” is the pension fund? How high is your level of cover? Are there any restructuring measures or the possibility of partial liquidation?
• When do you want to make withdrawals from the pension fund?

What are the advantages of property?

If you’re looking to invest your capital in property, there are also advantages and disadvantages. Because of its stability of value, property is generally considered to be a crisis-proof investment, and it offers protection against inflation. Compared to the stock market, the property market is subject to much less fluctuation. In addition, you can always use the property as your home. And investing in residential property can also save on taxes.

One of the main disadvantages of real estate is a lack of available properties.

In addition, the acquisition of investment properties requires a good deal of expertise, and it will also incur administrative expenses.

The capital invested in investment properties is tied up in the longer term, and there may be tax disadvantages in the event of any early sale.

There are also other risks: firstly, there is the risk of a rental property remaining vacant for an extended period and the loss of rental income. Secondly, real estate can also lose value: in the last 100 years, there have been several corrections of 20 percent or more. On top of that, you are also dependent on the mortgage you take out, as its financing is rarely fully covered by your own capital. Mortgages are also subject to fluctuations. 

To ensure that you invest your money well, choosing the right property is absolutely crucial, because not every residential property will be able to achieve the returns you wish for. Finding the right property takes time and effort, and you should bring sufficient expertise to the search. If you’re looking to invest in property, you should focus not only on the potential increase in value, but in particular also on the property or rental yield: this is the net interest that you can earn on a property within one year.

The following factors are important for the rental yield

• Purchase price
• Location
• Rental income
• Risk of vacancy

In Switzerland, owner-occupied flats and condominiums are especially popular as investment properties among investors with a “small” budget. However, traditional investment properties tend to be apartment buildings, although these do involve greater administrative expense.

Real estate funds as opposed to direct purchase

Compared to the direct purchase of residential property, the acquisition of shares in a listed real estate company or a real estate fund often offers greater security. While also not protected from value adjustments, their usually broad diversification does ensure greater stability. This is reflected in the demand for them: every year, billions in new money flow into Swiss real estate funds and real estate companies.

But here again, caution is required. Because vacancy rates fluctuate. According to the Swiss Federal Statistical Office, the rates nationwide stood at 1.15 percent in June 2023 and 1.54 percent in June 2021. For a long time, 1 percent was the norm.

What are the advantages of securities?

If you invest your money in shares and securities, you can achieve higher returns than by paying into your pension fund or buying property, but you also run a higher risk of loss. This risk can be reduced or increased depending on the investment strategy.

• Opportunity to achieve a higher return in the longer term
  
• Control over which companies you invest in (e.g. issue of sustainability)
• Shareholder rights that you can exercise

But you also have to accept some disadvantages

• Risk (up to and including total loss of the investment amount), as investments in securities are susceptible to fluctuations
• Time spent maintaining and managing the portfolio if you invest yourself
• Charges: if you buy and sell securities regularly, the charges you pay will reduce your profits

Useful information

Funds offer investors the opportunity to invest their money in a diversified way so as to spread the risk.

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