Saving has always been the German's hobbyhorse. But especially in recent years, saving has become tedious. Not only because there is so little money left over, but also because there is hardly any interest left on the usual savings options. In fact, the opposite is true, with overnight money and time deposit accounts, as well as savings accounts, accruing negative interest rates. Even if there were relatively high allowances, saving in this form was no longer an option for many consumers. Therefore, more and more small investors have flirted with the stock market and wanted to invest their money in stocks, funds or ETFs to benefit from the returns. If you are also considering investing in the stock market, however, you should first think carefully about which form of investment is right for you. How to find the right investment, you will learn in this guidebook.
Here's what to keep in mind about the different investment options
Of course, before you decide to invest, you should first learn about investment options. Here you should ask yourself questions about risk and investment goals. Because on the one hand the risk is an important factor and on the other hand also the yield. Because only if you know their connection, you also know how both factors affect each other. At the same time, the time of investment plays a big role. Do you intend to invest the money for the long term or would you rather go for a short-term investment?
The risk of investing money
Basically, any investment in the stock market is a risk compared to savings accounts or overnight and time deposit accounts. However, there is a crucial difference. While some securities carry a very high risk, there are others whose risk is low. Therefore, you must first ask yourself what risk you want to take and how important security is to you. In addition, you should ask yourself the following questions:
- Am I basically a risk taker?
- How important is the investment for me?
- What are the consequences if I lose money?
- What impact does a loss have on my current situation?
After you have asked yourself these questions, you are one step further and can then look at the point of return in more detail.
The return on an investment
The return is of course important if you want to increase your money. Of course, most people will say that the return should be as high as possible. But it is precisely this that is again associated with the risk. Therefore, you should be aware that the highest return also offers a low level of security. Because the higher the return, the higher the risk. This means that you have to take more risks if you don't want to give up a high rate of return. However, if you want to invest your money for retirement, you should not necessarily bet on extremely high returns, so that you can actually rely on a profitable pension in old age.
Long-term or short-term investment?
The duration of the investment depends very much on the investment objective. Should the money be invested in the long term or in the short term? If you want to invest your assets for a house, it is of course a short-term investment. For retirement planning, on the other hand, it is more of a long-term investment.
Basically, however, the longer you can do without the money, the better it is. Because especially the long-term investment horizon usually also means a higher yield. Especially if you need the money in the short term, it is possible that you will sell the securities at an inopportune time and thus, on the one hand, will have to give up profits and, on the other hand, in the worst case, still make losses.
Therefore, you should not invest money that you may need again in the short term for purchases. Assets should only be invested if you can do without them for an extended period of time.
These are the classic forms of investment
After you have clarified important questions, it now goes to the classic investment forms for your assets. These are
- Savings account
- Time deposit account
- Per diem account
- Shares
- Bonds
- ETFs
- Real estate
- Commodities
- Precious metals
However, before you decide on a form of investment, it is of course important to inform yourself about it.
The right investment: savings books, call money and time deposit accounts
Above all, the savings book is the most common form of investment. However, since there have been virtually no interest rates for years, the demand has dropped immensely. However, savings accounts have one big advantage – the money is safe and there is extremely low risk. Because especially in the EU, deposits with banks that are based in the EU are up to 100.EUR 000 secured. So if the bank goes bankrupt, your money is up to 100.000 EUR protected. But also with other financial products, such as the overnight or fixed-term deposit account, which you have with banks located in the European Union, these 100.000 EUR safe.
While overnight deposit accounts have the advantage of allowing you to access your money at any time, fixed deposit accounts are a bit different. Here a certain period of time is agreed upon, for which you receive a fixed interest rate. But this is also an advantage, because you already know at the beginning of the investment, how much money you will get back again. But in return you can not dispose of the money until the period has expired. Do you need the money, yet you have to face high costs to dispose of your money.
Shares and bonds
Shares become ever more popular, since above all savings books and other investments hardly still bring interest. However, here is also a disparity between young and old to see. While it is mainly the under-25s who invest in shares, older people still rely on the popular savings book and fixed-term and overnight deposit accounts.
Shares have some advantages and also promise a significant plus in terms of returns. In addition, the entry into the stock market is possible even with smaller amounts.
Of course, the risk is also much higher than with savings accounts. Therefore, perseverance is particularly important to reduce the risk and increase the return. This is because short-term investments in the stock market can significantly increase the risk. In addition, it's important to make sure you're also familiar with the stock you want to buy. This means that you should learn about the company and at the same time take a closer look at the opportunities as well as the risks of the company. As Warren Buffet, the third richest person in the world, said:
The stock market is all about transferring funds from active traders to patient traders.
If you want to invest in stocks, you should definitely get more inspiration from Warren Buffet. He has said in many quotes exactly how this risky market works. However, many people are also familiar with his words of wisdom.
Funds and ETFs
Especially in recent years you can hardly avoid ETFs. Especially for those who find individual investments too risky, ETF savings plans and funds are an excellent alternative. The advantage of ETFs and funds is obvious – the risk is diversified. While an individual share is strongly exposed to any price fluctuation, the situation is different with funds and ETFs. Here are a variety of shares in the pot, which are more or less risky. If a company weakens, it will obviously affect the stock price, but usually not the fund. Because here are other shares that may make a plus and so the negative price loss balances out better.
But here again it depends on the length of the investment. The longer you invest your money and the more flexible you are in selling the units, the more likely you are to make a profit and thus earn a higher return. For this reason, there are now already a great many providers offering special ETF savings plans for children. These usually have a maturity of at least 15 years and are therefore perfect for investing money for the next generation.
Real estate
Investing in real estate has been a good investment in recent years. However, this has changed in the meantime. Prices are falling and have currently (as of August 2022) plummeted by as much as 30%. Of course, this is a very good time to buy a property. But also the rising energy costs should be taken into account. Especially if you want to buy a property, you have to dig deep into your pockets and raise some capital.
Precious metals, commodities and bonds
Government bonds and precious metals as well as commodities are popular investment products. However, they are now also exchange-traded and therefore have just as many advantages and disadvantages as other investment products. If you want to invest in one of these types of investments, you should think carefully about what your investment goal is. Gold has been languishing at one point for years, silver has also not risen any further and government bonds are quite a risky product right now. If you didn't get into crude oil years ago, it's not worth investing in it at the moment, as prices are far too high and are more likely to fall again.
These tips you should take to heart for the suitable financial investment
If you want to invest money on the stock market, inform yourself about the respective investment opportunity.
- You should never invest only in a share. Spread your assets. But here, too, you should only invest in securities that you are familiar with, that you have read up on and that you stand behind. At the same time, investing in 20 different stocks in the same industry is rather counterproductive.
- There is no recommended strategy, since each life situation is different. This is why you need to find your own strategy to increase your wealth in the long term. In addition, you should never be guided by emotions or recommendations. Make your own picture of the investment opportunities.
- Of course, before investing, you should first have paid off your debts and have a nest egg of at least three to four months' salary set aside.
- Always go for long-term investments, as the risks are lower and the returns are usually higher.
- You should basically only invest what you don't need in the short term.
If you take these tips to heart, there is nothing to stop you from investing and you will also achieve your goal if you do it wisely.