Those who have a small capital aside and want to invest in the long run are asked which investment tools to choose. Among these are the PACs that are capital accumulation plans thanks to which you can invest your money a little at a time. This mode gives the opportunity to manage the commitment made and the risk gradually. So here’s what they are more in detail and how they work.
What are the PACs?
The CAPs are the accumulation plans of the capital that offer the possibility of making an investment little by little without the need for high figures.
They work in this way: a fixed sum of regular deadlines are paid, usually every month, and then these payments add up to each other and are invested in funds that may contain ETFs, shares, bonds or other. The goal is obviously to grow capital over time.
In this way, the investor can reduce the impact of market oscillations and benefit from capitalization in the long run. The latter is a mechanism thanks to which the saver can grow its savings in a constant and progressive way. With the PAC, in fact, not only do you invest in money periodically but the fact that what you earn remains invested is exploited and it produces a new earnings. This effect of compound interest calls.
The capitalization is effective, however, especially in the medium-long period as more time passes, the greater the possibility that the returns accumulate. Even payments of small figures if made constantly can produce a beautiful sum of this mechanism. If you want to get the most out of a PAC, the ideal would be to start early and keep regularity in payments.
Here is an example:
Let’s imagine we want to nvest 100 euros per month for 30 years and that inflation is equal to zero. At the end of this period there is 36,000 euros. The final capital, however, will not be given only by the sum of the payments as the installments invested may have grown over time thanks to the investments made.
Volunteer and automatic PACs
The CAPs are divided according to their composition and how they are created. There are the volunteer ones in which the investor creates the accumulation plan by deciding which figure pay every month and what assets to add.
In addition, there are the automatic ones for which we rely on management companies or the bank who automatically pay the money in a financial instrument every month.
Diversify is important
The PACs can be considered as intelligent pigs because those who choose them will decide in advance what the sum to be paid will be and with what frequency in order to create a custom -made savings plan. Like other investments, however, also the accumulation plans have risks as higher returns, correspond to a greater degree of risk. Precisely for this reason it is important to be careful and choose firm and well -managed funds.
To make your savings grow in the best way in a balanced way, diversifying is certainly the best choice. All capital should never be concentrated in a single sector or tool but distribute the money in multiple types of investment because in this way the impact of market oscillations will be reduced. If a sector should cross a difficult period, in fact, any losses could be compensated for good performances in other sectors.
Warren Buffet, the Guru of Finance, has always recommended to diversify investments to dilute the risks and at the same time build a more solid capital.
How to invest in an accumulation plan (PAC)
To invest in a PAC it is important to have clear what your goals are, what is the budget and the level of risk you want to run.
Activation can take place by:
- one’s bank;
- the help of a trusted consultant;
- contacting financial platforms or intermediaries such as Moneyfarm, Tinaba, Fineco, Just to name a few.
It is then important to have a current account as the automatic payments are taken from the latter, establish the amount that you want to pay, even small, and start making monthly payments.
The mechanism can be as follows: for example you can invest 1,000 euros at the beginning and then add 50 euros every month or only 50 euros every month without an initial capital. The important thing is that the monthly investment is not too high so that it can be maintained over time. Constance, in fact, is the strength of the CAP.
If you choose to open a PAC with Italian post officefor example, these steps will have to follow:
- choose the possible amount of the initial payment which must be at least 50 euros;
- choose the amount of the subsequent payments that must be 50 euros or multiple of this figure;
- Establish the cadence of payments or monthly, bimonthly, quarterly or half -yearly;
- Establish the duration of the plan which can be a minimum of 1 year and a maximum of 12 years;
- choose the fund or funds on which to activate the plan;
- Choose the nominative post saving booklet or the Bancoposta account on which to activate the automatic charge of the installments.
The commissions
That you decide to open a CAP through the help of a bank or robo advisor (online platform that manages investments automatically) it is important to know that there are costs to be incurred. The main ones are those:
- subscription;
- management;
- negotiation.
The negotiation commissions are the fixed costs that are applied to each payment for which they do not depend on the amount investing. Precisely for this reason they can weigh a lot if the monthly amount is low.
For example, if you decide to pay 100 euros per month and the fixed commission is 5 euros, the final profit will be reduced in the long run. The weight will instead be less on the overall investment if 500 euros will be versed.
In the event that you have little money, the advice is to make less frequent payments such as quarterly ones in order to pay less commissions and allocate a greater part of the money invested to increase your capital.
