Capital Accumulation Plans (CAPs) are an investment solution based on periodic payments which allows to mitigate market fluctuations. The specific advantages of a Capital Accumulation Plan make it a good way to start investing: by increasing your base investment regularly, you will see your savings grow over time, getting closer to your financial goals.
Investing in installments with the Capital Accumulation Plans (CAPs) can be a good idea both to set aside a sum for a future project, and to invest in periods in which the markets do not have a precise direction, but fluctuate: for this reason CAPs are recommended investments for beginners, but also because they are easy to manage (generally it is the bank or financial institution that offers the safest investments). If you decide to use it as a provision for a future project, how much to invest in a Capital Accumulation Plan are usually determined on your income and your foreseeable and potential expenses.
The Capital Accumulation Plan lifetime is flexible and decided by the saver: it can usually vary from a minimum of one to a maximum of forty years. According to experts, it makes sense to use these investments for the medium term (i.e. over 6 or 7 years old). If, on the other hand, you decide to use it to gradually enter the market, the period could be 12/18 months on which to spread the amount destined for the investment.
Advantages of a Capital Accumulation Plan
- flexibility, which allows the saver to predetermine the amount to be paid, therefore it is a very suitable tool for those who do not have large amounts to invest
- the elimination of the seasonal component and the investment in installments over time, at precise deadlines, reduce the risk of entering the markets at the wrong time
- it excludes the “emotional trap”: by investing gradually, you are not affected by the latest market trends, especially in times of high volatility
The Capital Accumulation Plans can be an ideal tool for parents who want to set aside an amount for their children, which, paid gradually, can become a guarantee of tranquility for the future. Or the CAPs can also be used for future projects with varied objectives, such as buying a car or a house, or to make some dream come true in the drawer that each of us has.
Performance of a Capital Accumulation Plan
Investing in a PAC helps improve your savings discipline and achieve your financial goals. Even a small amount set aside every month over time can lead to very significant results. But on average what are Capital Accumulation Plans performance?
Let’s imagine starting with an investment with 5000 $ or € and then contributing with an accumulation plan of 100 $ or € per month for 10 years. With an expected gross annual return of 5% gross – a conservative figure lower than the historical performance of a balanced investment solution in the last 10 years and the historical average annual growth of the financial markets – a return after costs of over 22,000 can be obtained.
Increasing the monthly contribution to 200 the simulation produces a return of 36,000 and with 300 a month of over 50,000, multiplying the initial capital by 10. When investing, performances are never guaranteed, but in the long term financial markets have always shown a trend towards growth and this example serves to illustrate the potential of setting aside small sums.