Letztes Update: 28. September 2023
At the beginning of the year, the question always arises as to whether it is better to pay in the pillar 3a maximum amount all at once or in stages, i.e. monthly. In the past, when there was still significant interest on the 3a account, the answer was simple: as early as possible. This allowed the interest on new money to “work” for as long as possible. But what about the stock market? The prices can fluctuate considerably. Wouldn’t it be better to “spread the risk” and make monthly payments? Let’s now take a closer look at this with the help of some calculations.
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Assumptions
I made the following assumptions:
- I have always taken CHF 6,883 as the maximum amount. This is not entirely correct, as it used to be lower. But since we are not concerned with the exact end result and I used the same maximum amount in both calculations, it doesn’t matter.
- I calculated the returns using data from the index provider MSCI. These are monthly closing prices of the MSCI World Index.
- I have not considered any costs. Neither does inflation.
- In the past it was not even possible to hold close to 100% shares within Pillar 3a, I generously ignored that.
Let’s start with the very large data series from January 2000 to November 2021. The following chart shows the index level of the MSCI World:
Pillar 3a deposit from 2000 to 2021
From now on, the charts with our fictitious pillar 3a deposit follow. I made the annual deposit of CHF 6,883 at the beginning of each year and the nearly CHF 574 monthly, of course. And this is what the capital development looks like:
What stands out at first glance? Not much, the two lines practically stick to each other. At the very beginning, the annual deposits are still noticeable with small jumps, after that they are hardly noticeable.
The graph is not quite correct, because we actually always have to consider the total maximum amount available. In other words: If you have CHF 6,883 in your bank account at the beginning of the year, you invest just under CHF 574 per month and the rest is sitting around in your bank account.
In the following graphs, the monthly curve is therefore always composed of the invested portion of the maximum amount plus the uninvested (non-interest-bearing) portion of the maximum amount.
The correct graphic, then looks like this:
However, the end result remains the same: the one-time investment beats the monthly deposit. The difference after the end of the period is slightly more than CHF 5,000. That is about 1.5% more. For a period of over 20 years, that’s almost nothing.
Pillar 3a deposit from 2000 to 2010
Because the two lines are even closer together in the chart above, let’s take a closer look at the first ten years.
And here we see that in the early years, the monthly line is higher than the annual line. The MSCI World declined steadily from early 2000 to early 2003, as you can see on the very first chart at the beginning of this post. And yes, there are also quite long phases where the stock market falls continuously.
Despite dips in the early 2000s and mid-2007, which the index did not recover from until 2014, the one-time investment beats the monthly deposit. In our example, only by about CHF 150, which corresponds to an additional return of about 0.2%.
Pillar 3a deposit from 2010 to 2021
Next, we look at the period from 2010 to November 2021. In this example, you would have paid in the maximum amount for the first time in 2010.
The two lines stick together less. And the annual beats the monthly deposit in turn. This time by just under CHF 4,900, which corresponds to an additional return of around 3%. This period was marked by almost continuously rising stock markets. You could hardly go far wrong with a broadly diversified index.
Conclusion Pillar 3a deposit date
We assume that the broad stock market will make a positive return over a long period of time, otherwise we would not invest at all on a long-term basis and without forecasts. The logical conclusion: the one-time investment beats the monthly investment. Because the longer the money is invested in the stock market, the longer it works there for you. All three of our examples showed this, and it wasn’t just fair-weather phases.
On the other hand, it can be said that the excess return in our example now was not staggering. And not everyone has just under CHF 7,000 in the bank at the beginning of the year and can invest it in pillar 3a.
I do both: half of the maximum amount at the beginning of the year with one provider, and one twenty-fourth of the maximum amount each month with the other provider.
If we add an interest-bearing pillar 3a account to conclude the chart with the longest period, the additional return on the pillar 3a deposit is staggering.
Source: Median average interest rates moneyland.ch (up to and including 2017) and PostFinance (from 2018)
And here you can see that the Pillar 3a account line was sometimes above the other two lines. You just have to be able to put up with that sometimes.
What this tells us: invest in securities early, know your investment horizon and be realistic about your risk tolerance.
Transparency and disclaimer
I was not paid by anyone for this blog post, it reflects my subjective opinion.
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