One of the most repeated questions when they know you are a financial advisor is what must be done to make our savings profitable? How can I create a heritage? One of the most effective systems for this is the PAC, the Savings Accumulation Plan that consists of making monthly contributions over time, experts indicate that at least 5 years. Thus, capital accumulates gradually, without the need to watch the evolution of markets and exchanges. The capital accumulation plan, guarantees a high profitability in the long term.
Explain it as follows:
Savings plan the fundamental idea of this savings plan is that investors are not able to continuously predict how the markets will evolve, so it is best to be constant and invest a quantity continuously over time. The more time we have, the more options to get higher returns, so the sooner we start with a more capital saving plan we can accumulate, the progression is exponential. Reason is hidden in compound interest ie interest generated on interest. You can see an example of how it influences the time factor in savings in this comparison of two savers the greatest advantage of youth time.
Where to invest the amounts we save monthly?
Much of the success of this savings system is choosing the destination of our monthly savings. If we choose, for example to invest in an action of a certain company, we are assuming a significant risk, since nothing guarantees that a certain company will last in time. If we have invested all or part of our savings in them in a systematic way our savings plan would not have been successful since the stock market value of these companies has disappeared or has dropped considerably. Thus, the greater security to obtain good profitability and to gradually accumulate a capital in the medium and long term is that our contributions are invested in a much-diversified form.
What capital can we have with a savings plan?
The capital that we are accumulating in a PAC savings plan will naturally depend on the amount of the monthly contributions and the period in which we have maintained it, but will also depend on the profitability that we are getting.
Depending on the amount saved monthly and years, we will have”Cash” contributed, that is to say, if this monthly amount is left in a piggy bank or in a current account at 0%, we will obtain the amount that appears in the column “Cash”.
If our monthly savings we invest in a diversified way and over time we get an average return of 5, 6 or 7%, the amount that we would have at the end of the savings plan would be the amount under each of these possible Performance.
For this we must have made a good diversification of our savings, in order to have sufficient liquidity at determined times to invest more in the medium and long term. As long as we are not going to use our money during a business cycle which is usually around 5 to 7 years we have many guarantees of increasing average profitability given that the global stock markets after the crisis periods have surpassed their historical highs.