Those who want to invest money have many possibilities. But what is the best investment, the flexible call money, the demanded ETFs or the trend crowd investing? We give you an overview of how you can invest money and investment tips for a profitable and secure investment.
Investing smart money - now and in the future
According to the Federal Statistical Office, western people set aside around 10% of their income per year and use it to save money. The central question here is always: "Where and how can I best invest my money? Should it be the tried and tested savings book or a classic financial investment such as a call money or time deposit account, or risky financial investments such as shares, funds or investments in tangible assets and gold?
Unfortunately, there is no simple answer. Because completely different are the conditions, which everyone brings along. Before you decide how you want to invest your money, it is worth clarifying some basic questions.
- Is the security of my invested money or the highest possible profit important to me?
- How much of my income can I use for my investment?
- How long can I do without the money I have invested?
- What investment goal do I have (how much money do I need for what and when)?
The following text gives you tips on how to deal with these topics and which investment suits you best.
The Magic Triangle - Factors influencing a safe investment
Risk, profitability and liquidity are the three most important factors influencing investments. Investments that promise a maximum return, always available capital and absolute security are in most cases dubious and therefore not recommended. Rather, these criteria compete with each other, as the so-called "magic triangle of investment" illustrates.
The model shows that only two of these three goals can always be achieved with respectable investments. So you can count with shares and securities on a high net yield and liquidity, for instance, must calculate for it however an increased risk. With a profitable and safe investment of funds the liquidity can be accordingly smaller for it.
Where can I best invest my money?
That depends entirely on you. Before you decide on the right investment, you always have to ask yourself: "What do I want? Security, a high return or fast liquidity? The "Magic Triangle" can help you make the right decision. When choosing an investment, bear in mind that only two of the goals can always be achieved. Therefore, critically question all investments that promise you all three goals. In the following we give you an overview of possible investments and tips on how to invest your money.
5 Investment tips: Which investment suits me best?
Not everyone is lucky and has a first edition of the 1938 Superman comic as an investment. It was sold in 2014 for around 2.4 million euros. Or do you have an original Beatles autograph? If so, then you could make a profit of more than €30,000 on the sale. For most investors, much less original investments are possible. We have compiled a selection of the various investment options with their advantages and disadvantages for you and answer the question "How can I still invest my money today?
Investment tip 1: Classic investments
Savings book - invest money like in grandma's time
Still the classic, the savings book has been around since the beginning of the 19th century. More than 70% of Americans have one, although it is no longer worth it. The savings book is a safe investment, but also a very poorly-interest bearing one. For many banks and savings banks, the interest rate is below 0.1%. Since the inflation rate exceeds the interest rate level for savings books, your money even loses value. Today it is no longer recommended as an investment.
- very low interest
- little flexibility
- no risk
Overnight money account - the modern way of saving
Overnight money is a very flexible form of investment. A call money account is an interest-bearing account without a fixed term. So you can dispose of your money at any time. The interest rate is usually higher than for a savings account. However, the interest rate is not fixed, it can change daily upwards or downwards. By the way, if you transfer your call money account to your child, you can save taxes. Your child is entitled to a tax-free allowance of €801 for capital gains.
After the transfer, the profits from this investment are settled via your child. However, several legal requirements must be observed for this, so it is best to consult a tax consultant.
- very flexible
- Interest rate not fixed
- low risk
Time deposit account - suitable if you can do without your money for a longer period of time
With a time deposit account, you invest your money over a certain period of time. The term is a minimum of one month and a maximum of 10 years. This means that you cannot get close to your money for this period. On the other hand, the interest rate is higher than with a call money account, as the following comparison shows. The longer you invest your money, the higher the interest rate.
Foreign currency account - high interest rates possible abroad
With a foreign currency account, you invest your money with US banks in foreign currencies (foreign exchange). With these foreign exchange accounts, you can achieve savings interest of up to 7%. However, you often still have to pay conversion fees, which the banks charge when buying and selling the currency. And an investment in foreign exchange is associated with risks. This is because the exchange rate between the euro and the foreign currency can change and thus reduce your profit.
- Good interest rate
- high risk, as exchange rate losses are possible
- high fee burden
Another option is to invest money directly in other EU countries. You can invest both overnight money and fixed-term deposits with foreign banks. You can do this easily via intermediary platforms such as Weltsparen, Savedo or Zinspilot. In some countries, such as France or Portugal, you can achieve higher interest rates on your fixed-term deposits in this way than in US, namely up to 2%.
Children's accounts - still offer reasonable interest rates
With a children's account, you can get decent interest. If you have children, you have an additional investment option. The branch banks focus on early customer loyalty and lure with ordinary interest of up to 3% for amounts up to 500 € with children's accounts. In this way, your offspring will learn how money transactions work at the same time.
- good interest rate
- low risk
- Limited investment amount
Building saving - not always sensible
The home loan and savings contract is very popular in US. You can pursue two goals in building saving. Either building a property or investing and saving. However, a bauspar contract is only worthwhile as a savings investment if you choose a tariff that includes high credit interest and you also receive capital-forming benefits from the state as a subsidy. With financial investments such as overnight money or fixed-term deposits, they are usually better off.
- partly useful as construction financing
- hardly flexible
- rather not suitable as a pure financial investment
Endowment life insurance - currently it is not worth taking out a policy
A capital-forming life insurance policy is a combination of protection and investment. This is also the advantage, because the insurance pays in any case: both in the event of death and when the contract expires. This form is not suitable for those who want to invest their money profitably. Because usually the contracts have very long running times, for example of 12 years. If you want to get out of the contract prematurely in order to get the money you saved, you have to reckon with losses. In addition, the savings income is partially reduced again, as the insurance company retains a portion to cover the death risk.
- very long maturities
- Losses on early exit
- whoever wants to invest money is better off elsewhere
Investment tip 2: Invest money in real estate
Real estate - using it as a yield property or investing money as an investor
You can invest your money in buildings, construction projects or real estate funds. The advantage of this form of investment is a high level of security, as the material value of the buildings hardly changes. However, investments in real estate have been associated with a high financial burden, as you as an investor had to invest several hundred thousand euros. A relatively new form of investment in real estate is crowd investing. Via the Internet, companies search for investors on special portals such as Exporo or Bergfürst. Since the lower limit for investments is sometimes only 500 €, there is the possibility to participate with a rather small purse. The maximum limit is 10,000 €. After a manageable period of several months or a few years, the capital you have paid in will be returned to you at an interest rate of up to 6%.
- great security
- high investments necessary in some cases
- Crowdinvesting very flexible and possible at short notice
Expert tip: Pay attention to the location when buying real estate! Real estate is still a safe investment. Prices for houses and apartments have risen in recent years. However the conditions are regionally very different. In July 2018, Stiftung Warentest took a close look at price trends, potential returns and current risks in 115 cities and districts and found enormous differences. The conclusion of the study: An investment in concrete gold is recommended, provided that the situation is right.
Investment tip 3: Invest money in securities
Shares - not for the inexperienced
When you buy shares, you buy a stake in the company. If the value of the company rises, the value of your share also rises. As a shareholder, you also receive a bonus, the dividend, at the end of the year. But no one can guarantee whether the value of the company will really rise. Just as well, it can fall and your share loses value. Trading in shares requires precise knowledge of the environment and involves a high level of risk. However, entering the stock business is easy. First, you open a securities account with a bank of your choice. Then you decide on certain shares or blocks of shares and buy them through your custody account.
Very risky investment opportunity
- high profits possible
- long-term investment reduces risks
Expert tip: If you invest money in shares, you should follow the advice of the major investor, entrepreneur and investment guru Warren Buffet: "Invest only in a share whose business you understand". He thus describes a simple principle. When you buy shares, you need to understand what the company is doing. Only then can you understand and evaluate the business model.
Bonds - a safe investment with low interest rates
Bonds are regarded as a rather safe investment. They are securities in which a company or a state borrows money, which is why they are also referred to as government bonds. As the buyer of these bonds, you grant the company or the state a loan and receive interest on it. The risk is that the state or company will go bankrupt.
As this is rather unlikely, the interest rate level is unattractive and bonds do not yield much at the moment. The interest rate on US government bonds has also been falling for years. A special form of bond is the Pfandbrief. This is a bond issued by a Pfandbrief bank. They often bear better interest than bonds.
- safe investment
- small profit
- for security-conscious investors
Derivatives and certificates - investing money for professionals
With derivatives you go far into the field of speculation. These are bets on the future development of stocks, commodities or currencies. These are very complex investment products. Although derivatives can quickly generate high profits, the risk for you as an investor of losing your money is also very high. Certificates are a complicated form of derivatives. Their return depends on the development of selected stock exchange products.
- very speculative, therefore high risk
- high profits possible
- only for experienced investors with specialist knowledge
Green Bonds - the ecological financial investment
Green Bonds are bonds with a special feature: You invest your money in projects that are particularly sustainable and climate-friendly. This could be, for example, the construction of wind turbines. However, there are no regulations that specify when a project is particularly climate-friendly. There is only an approximate standard that companies can voluntarily adhere to.
- support sustainable management
- relatively safe
- but imprecise definition
Funds and ETFs - more than just a trend
Funds are traded on the stock exchange and combine many individual shares. This reduces the risk of loss. After all, it is unlikely that all the companies represented in the fund will lose their value at the same time. A fund manager manages the fund and organises the various investments. ETFs (exchange trades funds), also known as index funds, are a special form. They track the performance of stock market indices such as the Dax or the Nikkei. ETFs are not controlled by a manager, so there are no costs for managing the fund. If you only want to invest small amounts in ETFs, you can start with less than €100.
- Reduced risk on the stock exchange
- ETFs suitable for retail investors
- suitable for beginners
Expert tip: "Back and forth empties your pockets" - this old stock market saying still applies. If you change your investment strategy too often, you end up running the risk of having no strategy at all. It's better to create a savings plan once and then go through with it.
Investment tip 4: Material assets as a safe investment
Art, Antiques, Musical Instruments, Cars, Shoes, Bags, Wine
Tangible assets are assets that have a certain value and for which there is a demand. This results in a broad field: tangible assets can be real estate and raw materials, precious metals and collector's items. A painting by an as yet unknown artist can be extremely valuable in 30 years, a rare pair of sneakers more in demand year after year. Many investors buy wine, not to drink it, but to resell it profitably. However, a high level of expertise and a large portion of luck are necessary for material assets as a safe investment.
- Very high profits possible
- extremely long-term investment
- feasible for insiders with expertise
You can also invest proportionately in expensive whiskeys
Whiskey (in the Scottish spelling whisky) is considered liquid gold by collectors. Certain varieties are experiencing fantastic four-digit increases in value. Experienced collectors invest primarily in Scottish single malt whisky. The most expensive bottle to date, a "Macallan M", was auctioned in 2014 for 628,205 dollars.
Some experts are convinced that the limited stock of older, rare whiskeys means that the market will continue to grow rapidly. Investors do not necessarily have to buy a bottle of their own to benefit, but can also buy into a whiskey investment fund. It was launched in 2014 and is managed from Hong Kong. The fund's portfolio comprises around 3,000 bottles, mainly from Scotland and Japan.
The price development of whiskey, for example, shows the RW (Rare Whiskey) Apex 1000, which contains the 1,000 most sought-after bottles of single malt scotch. The RW Apex 250 and 100 are similarly available. A look at the development of the index values makes it clear: over the last 18 years, the indexed whiskeys have recorded increases in value of more than 500 %.
Gold - the tried and tested long-runner
The precious metal has been regarded as a stable investment opportunity for decades. Especially in times of crisis, gold is often used as a hedge. In March 2019 one gram of gold has a value of 37.07 €. A troy ounce of 31.10 grams would cost € 1,152.90.
An advantage is the tax exemption that you receive if you have held the gold in your possession for more than one year and then sell it. A disadvantage is of course the storage. A safe deposit box or a safe is necessary. Which in turn is associated with costs that reduce your profit. Whether the investment in gold is worthwhile, must be well weighed. Even if the price of gold rises steadily, the return is not really profitable. Those who absolutely want to invest their money in gold should use gold stocks or gold ETFs as an alternative.
- safe investment
- as a part of your investment makes sense
- high storage costs
Investment tip 5: Special investment forms and current trends in investing money
Bitcoins - the digital currency as a financial investment
Bitcoins are a virtual currency on the Internet. You can purchase Bitcoins online as a means of payment and use them to make purchases in certain shops. The exchange rate for a Bitcoin has already risen by a few 100% in a few months. However, it has also fallen a few times in between. In March 2019 it was 3,496.72 € for a Bitcoin. Who wants to make profit with Bitcoins, must be fast and have strong nerves and deal daily with the current development of this investment.
- high profits in a short time possible
- major risks due to fluctuations
- who likes to gamble, is right here
Investing in FinTechs - investment with an uncertain future
FinTechs (abbreviation for financial technology) try to mix up the traditional banking and financial services market. More and more start-ups offer innovative products and thus become competitors of established companies. These start-ups are often backed by large corporations that require a lot of initial capital. You can acquire shares in listed investment companies and thus indirectly support FinTechs. But since nobody knows exactly which start-up will still exist in 3 years, the risk is very high.
- interesting field but risky
- good profits possible
- Expertise required
Acquiring shares in cooperatives - the secure financial investment
As an alternative to traditional financial investments, investments in cooperative shares currently offer significantly higher interest rates than call money or fixed-term deposits. Cooperatives exist in various sectors such as agriculture, housing, banking and energy. In the possession of cooperative shares you are both a member and co-owner of the cooperative. If profits are made by the cooperative, you will receive these pro rata. Cooperative shares as a financial investment are recommended for safety-oriented investors, as the bankruptcy rate is just 0.1%. However, if bankruptcy does occur, you have no legal claim to compensation.
- traditional investment
- very safe investment
- worthwhile for a long-term investment
10 investment tips: How to invest your money correctly
Tip 1: Pay off debts first, invest money afterwards
There are few financial investments that allow you to make a higher profit than you pay interest on an existing loan. This is why it is usually worth first paying off existing debts and then investing your money. By the way: the overdraft facility is also a loan. Here even on average almost 10 % interest is due.
Tip 2: Your risk increases with the amount of the yield
Many investors want to make as high a profit as possible. This is possible, for example, with equities or funds. However, this also increases the risk. Because these securities can also crash and lose their value. Or differently formulated: with a financial investment with small profits, your risk sinks.
The following overview summarises the forms of investment described above under the aspect of security.
Tip 3: Broad diversification of your investments protects against losses
For example, if you invest money in equities and make losses in the process, you can offset this loss with gains from other investments. If you are one of those investors who want to take a medium risk, then a third of your investment is a good option. Thus in each case approximately a third in share funds, in time deposits and in daily money.
Tip 4: Patience often pays off
There are frequent fluctuations, for example on the stock markets. If you wait and see, possible losses can be offset over the years.
Tip 5: Do not invest more than 10% of your income
With a gross income of 4.000 € this is 400 €. If the proportion of money invested is too high, you will lack money for everyday life. There is a danger that you will no longer be able to meet your regular expenses.
Tip 6: Think of a hidden reserve
Unforeseen expenses may occur at any time. That's why experts recommend a reserve of about 3-6 monthly salaries, which you can get up to at any time.
Tip 7: Pay attention to the ancillary costs of your investment
Some forms of investment, such as equity funds, are subject to management costs. These can eat up part of your profit. But even low costs, such as account maintenance fees, can reduce the return on your investment. Always keep an eye on these ancillary costs.
Tip 8: Invest early and you can achieve more profit
For young people, the topic of investment is often not yet important. The motto is: First complete an apprenticeship or study, then take off at work and start a family. That's why many people don't start investing their money until the end of their 30s or mid 40s. But then some years are already wasted, in which invested money can yield interest. If you have the opportunity to invest at a young age, you are ahead of the game, especially when it comes to long-term investments.
Tip 9: Consider your specific life situation
Do you want kids? Are you planning to build a house? Do you have a temporary employment contract? Depending on the situation you find yourself in, other forms of investment may make sense. If you are not sure how high your income will be in half a year, it is risky to choose long-term investments.
Tip 10: A Robo Advisor can be useful
What is the best way to invest my money? Finding the right investment strategy is particularly difficult for young and inexperienced investors. So-called Robo-Advisors, i.e. internet-based investment robots, can help you. It is not you who personally determine your investment strategy, but the Robo-Advisor recommends an investment such as easyfolio, Whitebox or Cashboard based on specific questions. However, as an investor you have to pay fees.