If you want to invest, is it better to have a PPR or an ETF? (Month #10

I return with the comparison between my PPR and my ETFs (SP500 and World). It has been several months since I wrote this monthly article and I apologize. I focused on writing the fourth book Savings Accounts (which is already in presale HERE, for example) and this equilibrium ended up being left behind. But it was never forgotten.

In fact, I come back to it with even more details and more information that can help you decide to choose one or the other, or both (like me).

I also left this comparison aside a bit, because because of the war they were both so “nasty” that at some point I myself gave up going to see how they were doing so as not to to discourage. At times like these, it’s time to let the time pass until they’re positive again. It’s not worth suffering, seeing disgrace every week. As you will see, at least temporarily, things are already returning to normal. Just knowing how to wait.

In this monthly post (which I haven’t done since May and now add every month in arrears), I compare my ETF and Casa de Investimentos’ Save & Grow PPR. I subscribed to these 3 products on the exact same day so the comparison makes sense.

You must understand that all the investments mentioned (ETF SP500 and ETF World) and the “Save&Grow” PPR of Casa de Investimentos must be considered for the VERY long term (5, 8 years or more) to have an idea of ​​the real direction. . I have already explained to you that these data that I am transmitting to you are only temporal portraits, without any technical or formal analysis. My goal is simply to share financial literacy so you know how these tools work.

NEW: As I realize that the PPR Save & Grow is very specific (it only has companies considered very safe, stable and with high growth potential, albeit slow), I decided to add a another PPR with different characteristics to compare with ETFs.

With the clarity with which you know I enjoy writing these articles, I want to clarify that the PPR STOIK I added to the tables and graph is only virtual. That is to say, while in the other 3 it is my real money that is there (1,000 euros each), in the case of STOIK I went to see the price the same day that I subscribed to the other 3 of this comparison and from there I went to see how much it would have grown or depreciated if I had actually subscribed to it. So it’s like it’s real.

In fact, it’s “real” because STOIK is currently my best PPR (may change). But since I had subscribed to them long before the ETFs and the PPR Save&Grow, it made no sense to compare different time values. The objective is to “race” between PPR and ETF in real time, simultaneously, under exactly the same conditions. So here’s this information – which doesn’t change the outcome in any way – the PPR STOIK I added this month is “virtual” while the others are “real”. I think it makes the comparison more balanced. I hope you agree.

So far, ETFs continue to have a huge advantage over PPR.

Of course, the difference has to be calculated later, only after 8 years, due to the difference in the value of the capital gains taxes the two will have to pay (8% PPR versus 28% ETF). As the PPRs are still negative (due to the war in Ukraine and global inflation), the situation is not yet legible, but I have made a comparative table, in case they are all positive. It never ceases to be interesting. I invested 1,000 euros in each of the products. Everything you find below – except STOIK – are real values ​​(that’s my money, not theoretical values).

I must also warn that I am comparing 4 specific products. Therefore, it’s not “PPR” because I’m only comparing two with a very high stock load (virtually 100″%), with two ETFs from specific brokers which may have slight differences in the management fees and index formation policies compared to the same ETFs from other brokers. In any case, I believe that you will – like me – have a very concrete idea of ​​the real-time comparison of the two types of financial products.

Let’s go to the accounts.

If you have no idea what an ETF is, listen to this episode of my podcast: What is an ETF?

What is an ETF and why compare it to a PPR?

ETF, also known as tracker, stands for Exchange Traded Fund. It is a product that tracks an index, commodity, bond or product composition. It’s basically a basket of publicly traded securities, but you don’t have to buy or sell them individually. Instead of buying vegetables one by one, buy a basket at an average price. In the case of vegetables, it is to make a soup; in the case of ETFs, it is a question of holding them and waiting for them to increase in value over time (as if they were collectibles or a wine that is appreciated in time).

As for PPRs, I think we have all heard of them because of the tax advantages or because we were “forced” by the bank to lower the mortgage credit spread. There are PPR insurances (which yield almost nothing and have a guaranteed capital) and PPR funds (which can yield much more, but which have no guaranteed capital).

PPR funds reflect news about the stock exchanges, indices and bonds that make up each PPR. A management fee is paid to whoever manages these PPRs, which changes the composition of the PPR fund over time. From the age of 8, the tax on profits that you have at the time of redemption is only 8%.

ETFs are an “average” of what happens on a stock exchange, exchanges, industries, countries, regions, etc. Nobody manages anything and it is the almost exact “mirror” of what is happening on the stock market. Imagine a graph with the average price of potatoes in Portugal. Today, the graph indicates that the average potato price is 1 euro. You buy 500 euros of the average potato price index, at 1 euro per unit of this index. If within 3 years the average price of potatoes has increased to €1.50, your €500 has become €750 (€500 X €1.5). If the average price of the potato has fallen to 80 cents and you buy it back that day, you will only receive 400 euros. Did you see the example?

Subscribe to brokers or banks. No one buys and sells anything and the commissions on these indices are very low to non-existent. On the day of redemption, you pay 28% on the capital gains, as in term deposits, and pay them to the IRS the following year (you receive less or pay more).

Read more: How I chose ETFs and PPRs

Some think that PPRs, even if they earn less over time, end up paying because they pay much less tax.

Others think that historically, ETFs are more remunerated because, as no one buys and sells, there are fewer management errors and as the commissions are very low, in the end, what grows more compensates for taxation more advantageous than PPRs.

My “cotton test”

The challenge I set myself was to try to find the answer with real cases (which are mine). In other words, if you choose a PPR different from mine or choose ETFs different from mine, on different dates, your results will also obviously be different. But at least you have an idea.

I chose a PPR with a huge percentage of stocks (95%) and the two most famous ETFs in the world. The 3 were subscribed on the same day so that the analysis is as precise as possible. The ETF and the PPR were subscribed simultaneously in the last week of July 2021. I then added the PPR STOIK, virtually, but with the same day data from the others.

The following data refers to the end of August 2022.

Either way, to lose all the money invested, ALL of the top 500 companies in the United States would have to go bankrupt, or all of the largest companies in the entire world. Of course, what you invest will go up and down and you may have a balance (much) lower than the amount you invested. In these circumstances, it is enough to wait patiently for it to recover. There are no more “tricks”.

For those who ask, I subscribe to my ETFs on the Degiro digital platform. I say this for the sake of transparency (I gain nothing from it).

PODCAST | #107 – I am losing money on my investments. What do I do?

For those who ask, I subscribe to my ETFs on the Degiro digital platform. I say this for the sake of transparency (I gain nothing from it). There is also their identification here (with the “citizen card” of each of them, called ISIN).

  • iShares Core S&P 500 UCITS ETF USD (Acc)

IE00B5BMR087

(Around 400 euros each)

Graph of what has increased since the “bottom” of Covid-19.

  • Vanguard FTSE All-World UCITS ETF USD Acc

IE00BK5BQT80

(About 100 euros per Unit)

Graph of what has increased since the “bottom” of Covid-19.

Please do not consider these investment advice articles. You must investigate for yourself and calmly analyze each of the products that interest you. There are dozens or hundreds of good PPRs and ETFs. They are the ones who gave me the “way” to invest when I did. My objective is purely pedagogical and I gain nothing from it. I also don’t want to take responsibility for anyone who says I said it was right or wrong. You have to think for your own head.

And the PRP?

The Casa de Investimentos “Save & Grow” PPR is made up of 95% stocks of the largest and most “safe” companies in the United States, mainly.

They follow the strategy of “investing in value”, i.e. they only invest in companies that are stable and with a “guarantee” of growth and which reinforce the PPR when they are at a good price. On their page you will find all this strategy they have followed over the years well described. I subscribed 1,000 euros, for a short period I had a very small appreciation of 14 euros, but it has been negative for several months. It is devalued by 13% in August 2022.

After 14 months, there is a difference of at least 26% between the performance of my two ETFs and the PPR Save and Grow.

Of course, it’s still too early to make comparisons, but I want you to follow this “race”. They are completely different strategies. PPR specifically chooses the stocks it buys and sells moment by moment, and ETFs only replicate the US and global average. Therefore, Save & Grow will – over the years – experience many times of higher drops than ETFs and higher growths as well. Let’s wait. Let’s wait until the war is over and see what happens.

In this Excel graph (Google Sheets) you have the evolution of the interest that each earns and lower the value corresponding to the gross value proportional to the interest of each in a portfolio of 1,000 euros.

So far, looking at the numbers, after 14 months, ETFs are gaining by far over PPRs (I have others growing more or losing less).

Where to start investing without guaranteed capital (and having the possibility of having higher returns)?

  1. Make a good PPR fund (see income and commissions, and define your profile – defensive, moderate or aggressive)
  2. subscribe to ETFs
  3. Subscribe Investment Funds

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