3a Stocks vs. Account Solution: The Difference

With Pillar 3a, you basically have two investment options: securities funds with various equity quotas that you can choose yourself, typically ranging from 25% to 100% equities, or a traditional account solution.

While an account solution is a safe but usually low-interest investment, equity funds offer the potential for higher returns, though with higher risk.

Equity strategies can be a way to counter rising inflation (about 2% over the last few decades).

Investment Horizon and Risk Profile

The choice between stocks and an account solution strongly depends on your investment horizon and risk profile.

Younger Investors (18-40 years): At this age, you can usually afford to take on more risks since you have a longer investment horizon. This means you can wait longer for stock prices to rise. Therefore, a stronger weighting in equity funds could be advisable, as they offer the potential for higher returns in the long term.

Middle Age (40-55 years): Here, a mixed strategy might be appropriate. A combination of stocks and secure investments can help diversify risk while still benefiting from the potential higher returns of the stock markets.

Approaching Retirement (55 years and older): At this stage of life, you might start reducing risk and placing more emphasis on account solutions to secure your capital.

What to Consider When Choosing a Pillar 3a Equity Strategy

As with any rule, there are exceptions. If you're more risk-tolerant and not dependent on the money in Pillar 3a, it might make sense to invest more in stocks.

In addition to choosing between stocks and account solutions, as well as considering your investment horizon and risk profile, there are other important aspects to consider:

Investment Costs: A key factor when choosing your Pillar 3a investments is the associated costs. Actively managed funds generally have higher annual management fees, known as the Total Expense Ratio (TER). In the long run, these often do not outperform ETFs (Exchange Traded Funds), which track an index, an industry, or specific trends. Since you can control the costs in fund investing, you should pay particular attention to this.

Availability of Your Money and Investment Goals: Carefully consider how long you want to be without your deposited money and what your primary savings goal is. Goals can change over time, and an early sale can be costly, especially if the sale occurs at an unfavorable time due to a stock market correction because the money is needed, for example, for starting a business rather than for retirement. Consider your primary goals within your investment horizon.

Diversification in Equity Strategy Selection: Another crucial aspect when shaping your Pillar 3a equity strategy is diversification. Diversification means spreading your capital across a variety of investments instead of putting everything into a single asset class or market.

Why is diversification so important? Simply put: the more diversified you are, the more you reduce the risk of volatility in your stock portfolio. This is particularly relevant because stock markets naturally experience fluctuations. By spreading your investments across different industries, geographic regions, and asset classes, you can minimize the risk of a significant loss if a specific market or sector underperforms.

For example, a well-diversified equity strategy in Pillar 3a might include investments in international markets, various industries such as technology, healthcare, and consumer goods, as well as in different company sizes, from large-cap to small-cap stocks.

Here are the main providers in the Pillar 3a sector:

• frankly. | Advantages with securities in my Pillar 3a
• VIAC Pillar 3a Investment Strategies - Cost-effective and Broadly Diversified
• Liberty | Liberty 3a: Financial Security in Retirement and Tax Savings

Conclusion

In summary, your individual Pillar 3a strategy strongly depends on your age, risk profile, experience in the financial market, and financial goals. It's important to realize that while stocks carry higher risks, they can also achieve higher returns in the long run, whereas account solutions represent a safer but less profitable option. In the long term, stocks in Pillar 3a are a very interesting investment because withdrawing the funds is only possible under certain circumstances. This protection prevents impulsive and emotional sales.

Don’t hesitate to seek professional advice to find your optimal Pillar 3a solution. Ideally, consult a neutral tax expert or financial advisor who understands the overall context.

In our digital fiduciary directory, you can find numerous professional tax advisors who you can contact for your personal concerns.