What the farmer doesn't know ...
"What the farmer does not know, he does not eat," is an old and admittedly rather rough saying. Surprisingly enough: it obviously has universal validity. Because it does not only refer to farmers, but to the majority of the population in this country, and the Germans focus not only on what they are used to when eating, but also when investing money.
Actually, caution and a certain skepticism about new things are good qualities, even when investing money: after all, they protect people from some frivolity and especially from bad experiences with investment fraudsters. On the other hand, traditional ways of investing in view of the current low interest rate environment are one thing above all: a first-rate loss-maker!
Bank accounts and insurance: Germans' favorite forms of investment
Every quarter, the Deutsche Bundesbank publishes statistics on the form in which households in Germany hold and invest their financial assets. Almost 40 percent of private financial assets in Germany, and that is a total of more than 5,5 trillion euros, are in any bank account - be it giro, savings, overnight or fixed deposit accounts or even savings letters and savings contracts; the cash portion is likely to be negligible. Germans have invested almost the same amount of money in life and pension insurance or other private pension rights. Shares and investment funds add up to just around 20 percent.
In their endeavor not to make any losses, the Germans follow a habit that has worked well for decades. They put their money in bank accounts, where they are currently being paid off with minimal interest and must be happy if the bank does not accrue any penalty interest. To do this, they regularly pay uniform monthly installments into capital life and pension insurance policies, the returns of which are largely eaten up by the high fees and costs for survivor protection or the promise of lifelong pension payments. In this way they know: »My money does not depend on the welfare and woe of the world stock exchanges. It is certainly not dependent on any economic and corporate news that can cause stock prices to fluctuate tremendously every day and can produce unspeakable losses in one fell swoop. With this knowledge, most can sleep peacefully - and do not even notice that they are oversleeping on an important development that nevertheless takes place with their money: namely the gradual loss through inflation.
Fears of loss lead to losses
"Better meager interest rates than none at all" is the credo of many savers in Germany. But those who think so overlook the fact that the interest they receive is only part of the whole truth. If you really want to know whether your investment is profitable or not, then you shouldn't just look at the interest on the balance that a bank account or savings contract throws off. You must also pay close attention to how the purchasing power of your assets develops. You can buy more of 100 Euro today than in a year - and certainly more than in five, ten or even 20 years. The ongoing decline in purchasing power is - unfortunately! - nothing that puts a conservative investor to sleep. But he should! Because the dream of safe, loss-free returns with interest investments has long been a dream, only that many do not realize this. In the long run, even with moderate inflation of only 2 or 3 percent, there is a development that every saver and investor actually wants to avoid: a loss of wealth. And that, even though on his bank statement or on his booth notification
Insurance never shows a minus sign, but the amount even increases nominally. The loss is simply due to the fact that mini-interest assets do not grow quickly enough to make up for ongoing inflation. In other words, the amount, including interest, at the end of all savings efforts is often not enough to buy just about as much of the money invested at the time of the deposit. This situation is exacerbated by the fact that the first banks have started to charge negative interest rates.
How to invest safely and profitably
It is no wonder that uncertainty is spreading everywhere about how one's own money can still be invested safely and profitably today. Bank advisers and insurance intermediaries are usually not of much help here because their "advice" is often controlled by commission interests and is therefore anything but neutral. It is therefore worthwhile to make investment a top priority and to take care of it yourself.
We want to encourage you to take the step of going public. Because most Germans' fear of stock market investments is not justified. If you do it right, you can minimize your risk and at the same time get an attractive return for yourself. In this book you will find many practical and tangible tips on how to do this. You will also find out how you can top up your 10 000 Euro with money from the employer and the state - and without being excessively bound by requirements and legal regulations. So it's time to start the return engine for your investment - tackle it with courage!
3 typical investment scenarios
We would like to briefly give you 3 typical investment scenarios imagine, Think about which scenario best suits your situation and heed our tips - you can also modify or mix them if none of the 100 percentages suit you:
- As an even younger person around the age of approximately 30, you have inherited 50 000 euros or received a corresponding severance payment. You want to invest this money in the long term for later.
- You are around the 50 or a little older and fear that the statutory pension and your existing savings may not be enough for a carefree retirement.
- You are approximately 65 years old, have already retired or are about to do so, and have received life insurance payments or additional liquid assets through a property sale. For you, an additional income to the current pension, but also the preservation of assets (also for future generations) as well as protection against currency and other crises are in the foreground.
3 options for your investment
The longer you hold equity investments, the safer they are. Here are three possible options:
- You choose your shares yourself: You choose individual shares yourself
- You invest in active or passive funds and therefore focus more on risk diversification. A fund invests the investor money in several dozen or even several hundred shares.
- You leave all decisions to a machine, a so-called RoboAdvisor. With the help of artificial intelligence, the human weaknesses of the investment (greed and fear) should be eliminated. Many banks and financial service providers now offer this automatic help when making investment decisions. As a customer, you answer a few questions about the investment amount, investment horizon and risk appetite, and the internet-based system is already looking for an investment that is supposed to suit you perfectly.
Your optimal stock strategy
While we can recommend the first and second way without hesitation, we at RoboAdvisors (still) advise you to be careful. Computer programs are a huge help in almost all situations - including when investing. But the current tendency of the financial sector to capture as many private investors as customers with its RoboAdvisors is worrying.
Our advice is: Combine the 1 and 2 options. For example, you can split the money and invest part of it in individual shares and invest part in funds or ETFs. It will be exciting to see which strategy has produced the better result after ten years.
10 steps: invest 10000 Euro correctly
- Prepare yourself from the start against commission-dependent intermediaries and advisors, for whom you represent an attractive target with your 10 000 Euro. After all, anyone who wants to give you an allegedly lucrative investment primarily has your own commissions in mind, and there are also many fraudsters on the market.
- First you put all money in a call money account. Depending on the general interest rate level, you should pay attention to high interest rates and a sufficiently good deposit guarantee.
- Without stock market investments, you cannot create an investment that even beats the inflation rate in the long run. However, they are not exposed to the ups and downs of the stock exchanges without protection, but have several options to minimize the risk.
- You decide how much money you need as an emergency reserve for unforeseen expenses (repairs, electricity, gas or additional payments etc.). As a rule of thumb, two to three monthly salaries apply here. You leave this money in the overnight deposit account. You invest the rest at once or little by little in listed securities. For this you need a securities account and knowledge of how to buy these securities
- Investment funds, ETFs and / or stocks are particularly suitable. If you are particularly concerned about crisis preparedness and asset protection, then it is also advisable to buy gold and silver with a maximum deposit share of 10 percent
- You are concerned about your investment horizon, i.e. the expected duration of your investment. How long can you let the difference between the emergency reserve and the target amount of 10 000 Euro work for you? If that is a maximum of five years, it is best to invest all or all of the money (except the emergency reserve) in an actively managed mixed fund. If, on the other hand, it is more than five and ideally even more than ten years, then it is best to buy a combination of mixed funds and shares, share funds or share ETFs. The exact distribution of the money depends on your risk appetite.
- For the proportion that you would like to invest in stocks, equity funds or equity ETFs, rate your stock market experience. If you have no experience with stock market investments, ETFs are your first choice. If, on the other hand, you already have some experience and knowledge, then individual shares are also suitable for you.
- Think about whether you would rather invest the amount in question once or gradually instead with a savings plan that is not only available for funds and ETFs, but also for stocks. You should only risk a one-off investment if you are familiar with the stock market and dare to find a good starting point. Otherwise, set up a fund, ETF or stock savings plan, in which you always invest the same monthly rates. In about three years, all your money minus the emergency reserve should be invested in these securities.
- Check whether your investment amount of 10 000 Euro cannot be increased from sources that you do not have to finance yourself. An uncomplicated and widely available option are asset-based benefits (VL) from the employer, which can bring up to 480 euros per year. In addition, there is often the employee savings allowance of up to 80 euros per year. VL and employee savings allowance ideally increase your savings by more than 5 percent per year, so it is worthwhile to take advantage of this opportunity.
- Use all the savings options that are available. Whether taxes or transaction fees - every euro saved is one euro more on your credit side. Also consider the taxes. The Treasury demands its share in every investment. But there are a number of legal options that you should use to reduce taxes.
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German edition: ISBN 9783965961005
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