What are the basic rules of investing?

Dec 14, 2020.

Are you dissatisfied earning almost no interest on your account but unsure about how and where you could better invest your savings? Here you will learn the most important guidelines for successful investment.


Learn how compound interest works for you over time. Understand the interplay of risk and return. And know how to assess your risk capacity and risk tolerance so you can decide on the right investment mix for your situation.



Differences in returns

The effect of compounding investment returns is often underestimated. However, compounding, even in small amounts, can generate considerable assets over long periods of time. It is the main reason why it pays to start saving as early as possible.


It is therefore important to pay attention to even the smallest differences in returns when investing – and in particular to the costs that your investment incurs each year. If one financial institution charges you a fee of one percent while another charges only half a percent, this will make a big difference to your final assets.



Risk and return

The relationship between risk and return is clear: the higher the expected long-term return, the higher the risk you have to accept. In the financial world, risk is usually measured in terms of volatility, which indicates the degree of fluctuation in the price of an investment. If you want high returns, you therefore have to be able to cope with the fact that your investments may sometimes lose value in the short and medium term.


Nevertheless, the risk usually pays off in the long term. This is shown in the following chart: since 1990, Swiss equities have achieved an annual return of nearly 12 percent – with a risk of just over 22 percent. Swiss real estate was safer with a volatility of 8 percent in the past few years. But the annual return was only 6 percent.


Risk and return of various asset classes since 1990

Good to know

While it is true that past profits are not a definite measure of future profits, some generalisations can still be made about the returns of individual asset classes in the long term. In the past, investors have usually done well with equities in the long term, even if securities are repeatedly rumoured to be dead. Equities will continue to generate higher returns – and entail greater risk – than bonds. The prerequisite for success is that your investment horizon is long enough.




Different asset classes perform differently, and the same applies within an individual asset class. For example: when the Swiss National Bank announced that it would no longer defend the Swiss franc’s cap of CHF 1.20 against the euro in January 2015, the SMI, the Swiss blue-chip stock market index, plunged dramatically. The shares of export-oriented companies such as the Swatch Group were hit most severely and in some cases lost more than 16 percent. Some other shares behaved quite differently, such as Swisscom: the shares of this telecommunications company, which mainly operates domestically, actually increased by 1 percent.


Generali tip

Because you as a private investor can hardly know which stocks will perform better in the long term, a more promising approach is to buy a package of shares from the start – one that is widely spread across different sectors and countries.


Each different share reduces the overall risk. It makes sense to invest in at least 12 – but better still 20 to 30 – different stocks from different sectors and countries. If you only invest in equities, however, the general risk of a stock market collapse remains. In order to further reduce the overall risk significantly, you also need to invest in asset classes other than equities, such as bonds and real estate. In other words: you must diversify.


Generali tip

It makes no sense to buy one each of various individual securities as the transaction charges and custody fees would be much too high. This is why genuine diversification for small to medium-sized investments is practically only possible through investment funds.



Your risk profile

The risk profile is developed based on an investor’s risk tolerance and risk capacity.

  • On the one hand, there is your willingness to take risks – an emotional factor. Some people like to take risks, others shy away from them in general, not only when it comes to investing money. What is more, risk tolerance fluctuates with the stock market – if prices have risen steeply, investors are more willing to take risks. They become risk averse after a drop in prices.
  • Then there is your risk capacity, which is a more objective value. It depends on the assets you have available to invest, your experience in financial investing and, especially, your investment horizon – the period of time the funds can remain invested.


Generali tip

Do not overestimate your willingness or capacity to take risks. If you have not been interested in investing money in the past and have always put aside the financial pages of the newspaper unread, there is a good chance that you will overreact to price fluctuations and sell in a panic at the wrong moment. And if you have to sell your assets at the adverse moment because of a financial bottleneck, you will make a loss.


Decisive: your investment horizon

The longer your investment horizon, i.e. the period in which you are willing and able to invest your assets, the more risk you can afford to take. And, thus, the better your chances of generating returns. This is because shares may cause heavy losses in the short term, but are less likely to do so in the longer term. While you should expect losses of one third for an investment horizon of one year (with a 60 percent chance of making a profit), hardly any losses are to be expected over a period of ten years while profits of up to 20 percent are expected (see chart).


The longer the investment horizon, the lower the risk.

“If you want to keep risks to a minimum, it’s important to diversify your investments and choose those that are aligned with your investment profile.” 

Romain Gremaud, Sales Manager

About the author

Romain Gremaud has been working in the insurance and finance sector for almost 20 years. He has continued to develop his skills over the years thanks to his on-the-ground experience and ongoing training, which have led to his obtaining the Federal Diploma of Higher Education in Financial Planning. He has been Sales Manager at Generali in the Valais region since 2016.

The right investment mix

The first thing you should do is determine what assets you will not need for a long time – i.e. for at least the next ten years – not even for major purchases such as home improvements, an extended education or a trip around the world. You must also calculate in a safety buffer – there should always be enough liquidity available, i.e. money in your salary or savings account, which you can quickly get at should some unforeseen event happen. You should plan at least three months’ salaries for this.


You then invest the rest of your assets in bonds, possibly supplemented with a portion of real estate or commodity investments. Diversification of the investments is also important here.


Determining the investment mix more precisely

The risk profile applies for each product. Your answers to specific questions helps us to determine the corresponding risk profile. Customers have the option of completing the risk profile with their advisor. With our digital pillar 3a, the customer is guided through the process online. The questions focus on risk capability and risk tolerance. Depending on the product, the recommended risk profile can be modified if the customer consciously chooses another risk profile and confirms this selection.


Good to know

Besides the uncertainties in determining your own risk profile, your risk profile may also change over time. The willingness to take risks tends to decline with increasing age, as does the capacity to take risks. Changes in personal circumstances such as marriage, children, divorce and retirement also have an influence on risk capacity. And, finally, gains and losses made on the stock market can also alter your risk capacity.


We would be pleased to discuss your individual needs in a personal consultation and work with you to find the right solution for you.



Helpful Generali solutions