December is here, and with it comes the flood of contributions to pension plans, The vast majority of them receive contributions only from the at the end of the year. Today we will see why this practice can result in a loss of more than 2% per year., We make regular contributions throughout the year.
More than half of the contributions are left until the end of the year.
Since this is the case, and entities are already aware of it, the The most important fund-raising efforts are made at this time of year. In fact, we have already been listening all November to the gifts for transfers, by contributions... Which, by the way, more and more demands for permanence; in some cases up to 8 years.
However, what is worrying is the lack of knowledge that this practice causes a real loss compared to the return that our pension plan could achieve if we were contributing throughout the year.
Why is it better to contribute to the pension plan on a regular basis?
There are 2 main reasons why it is really beneficial to contribute throughout the year and not accumulate it in a specific period of time
Savings do not occur in December, but accumulate throughout the year.
Something that seems as simple as that, what it really means is that the savings we achieve month after month stay in our pockets for the rest of the year. wasted in our bank account the potential return we could generate in that time until we make the contribution at the end of the year.
Example: if at the end of the year we contribute 2,400 euros to the pension plan, it means that I have saved approximately 200 euros per month. If at the end of January, February, March... I put that money in as I accumulate it, I will generate a return for: 11 months, 10 months, 9 months... and so on. Instead of waiting until December to put it in all at once.
The risk of buying too expensively
If we only invest a large amount of money at a single point in time, instead of spreading it out over the year, we may find that we are “buying expensive”.
This is an obvious risk, and it shows that when we invest in non-guaranteed pension plans (e.g. mixed plans, which are our favourite), they go up and down during the year....
If it turns out that it has been a very good year and the pension plan has been revalued by 7%, and then you go and contribute your 2,400 euros, you are “buying it at a premium”. If you had done so during the year, you would have been acquiring assets over time, minimising the risk of these fluctuations working against you.
How much do I lose if I do not make regular contributions?
The experts of Abante Advisors, The figures for the last 20 years show that we are talking about an increase in the number of people living with HIV. 2'7% annual average. This estimate is applied to pension plans with a high risk percentage, not exactly to PPPs.
In any case, if your aim with the pension plan is to maximise your savings and benefit from its favourable tax treatment We strongly advise you to consider this option during your contributions, as the long-term returns will be very high.
If you would like us to help you choose the best alternatives, we work with 20 insurance companies, among them the leading insurance companies a niven national. Talk to our Savings and Investment Department and will help you to know how to choose the pension plan.
