How is money good
Low Interest: How Should You Invest Your Money Today?
For some years now, a downward trend has been noticeable in overnight money, fixed-term deposits and the like. Take overnight money, for example: even the top providers on the market currently offer just over 1 percent. At many banks, the interest rates tend to hover in the range between 0.0 and 0.1 percent.
Although inflation has been low for several years, the rate of price increases is above the average savings interest, so that the money invested in this way loses value every month. This real loss in value is already a negative interest rate.
At the beginning of the year you invested EUR 1,000 at an interest rate of 0.5 percent. If you had spent the money instead, you would have received goods and services worth 1,000 euros in return.
At the end of the year you have 1005 euros on your account (credit + interest). If you spend the money, your 1005 euros - assuming inflation of 1 percent - only have purchasing power of just under 995 euros. In fact, despite the interest payment, you are in a worse position than at the beginning of the year.
If you invest the 1,000 euros for ten years at an interest rate of 0.5 percent, with interest and compound interest you will end up with a capital of just under 1,051 euros. If inflation is consistently at 1 percent during this period, your purchasing power is around 951 euros. So the real loss increases from year to year.
The solution to the problem is not to spend your money as quickly as possible, but rather to spread it appropriately across different product classes.
In recent years, the possibility of deflation has also been considered in principle. Deflation means that prices no longer rise but fall. For example, if you buy goods and services for 1,000 euros today, with a deflation of 1 percent you would only have to spend 990 euros a year later. For the individual, deflation makes saving more attractive again. From an economic perspective, however, deflation would be extremely worrying, as the prospect of further falling prices means that too little is consumed.
Then companies can sell fewer goods and services, lay off employees due to lower demand and a vicious circle begins. The European Central Bank is therefore considering what monetary policy measures can be taken to avert the risk of deflation.
Look for cheaper account providers
Some banks now charge so-called custody fees on overnight money and current accounts. Many also speak of "negative interest", "negative interest" or "penalty interest". In some cases, this applies to a balance of, for example, 50,000 or 100,000 euros. Some credit institutions take such fees from new customers from the first euro credit.
You can find an objective price comparison at Stiftung Warentest. Incidentally, banks have to help with an easy account change to a new provider.
In any case, one is recommended when investing wide spread across different product classes and delivery times. Among other things, investors can also use it to protect against inflation.
In addition to overnight money, fixed-term deposits and savings, the purchase of investment funds, real estate (funds), precious metals or stocks can also be considered. In principle, investments in tangible assets (stocks, equity funds, real estate) are suitable as a means of countering inflation. But here, too, the investor cannot blindly access it. How the concrete division should look is very different from one individual to another. This depends on the amount of assets, but of course also on the personal willingness to take risks. A fully comprehensive insurance against monetary devaluation does not offer this procedure either.
Call money and fixed-term deposits
Savings book, fixed-term deposits and overnight money are very secure forms of investment, which makes them a central component of any financial investment. The reason for this is the statutory deposit insurance. In the event of a bank failure, 100,000 euros per bank and customer are protected. However, banks and savings banks offer extremely different rates of interest for these types of investment.
It is advisable to check regularly whether the interest rates of your own bank (still) correspond to the top conditions on the market. If not, savers can consider changing credit institutions. Suitable overviews can be found at Stiftung Warentest, for example. Those who do not want to constantly change their bank can, for example, limit themselves to those banks that have consistently offered good conditions in the past. The Stiftung Warentest, as well as comparison portals on the Internet, particularly highlight relevant providers in their overviews.
Ideally, you should save an amount of at least two to three monthly net income in a call money account. With such an iron reserve, you can react to unforeseen expenses quickly and without borrowing.
In general, the following applies to investors: Check up to date interest paid by their bank regularly. If these are well below the top offers, you should think about changing providers.
In the past, good fixed-term deposits were above the inflation rate. However, with such offers the money is tied up for several months or years. It cannot be spent or otherwise invested during this time if interest rates rise during the agreed investment period. Therefore, spread over the terms here too: For example, divide the amount available for a fixed-term deposit by a third and invest it for one, two and three years. In this way, you can respond with at least a partial amount if interest rates rise.
Stocks and mutual funds
Depending on your risk appetite and experience, mutual funds can be a suitable component of your investment. This is also a long-term capital investment. In contrast to individual stocks, investment funds offer the advantage that even small amounts can be widely diversified, i.e. the purchase of many different stocks. If the price of a single company falls, price gains in other stocks can compensate for this.
Exchange Traded Funds (ETF)
Particularly noteworthy in this context are so-called ETFs (Exchange Traded Funds) as a cost-effective alternative to conventional actively managed investment funds. With the latter, the fund manager himself decides which and how many shares to buy for investors, an ETF makes work easier. It simply copies the composition of an index, such as that of the German Stock Index (DAX). Above all, this saves costs, as the management fees of ETFs are significantly lower than those of traditional investment funds. However, if a fund incurs low costs, it has to generate significantly fewer profits in order for the investor to achieve a positive return.
Open real estate funds
Open real estate funds can also be a suitable part of the investment. Lately, however, the industry has hardly had any positive news due to numerous fund closings: During the financial crisis, many investors wanted to get out of real estate funds by returning their shares to the fund company. According to the rules of the time, this was possible almost every day. But a large part of the money was in real estate, which is known to be difficult to turn into money quickly.
Since the funds were unable to meet all of the payout requests, they completely suspended the redemption of units. As a result, no investor got his money for the time being, but had to wait until enough real estate could be sold. This waiting period can be several years. In order to resolve the contradiction between availability at all times and the long-term commitment of money in real estate, the legislature has enacted new rules. In many cases, fund units now have to be held for a certain period of time before the investor can return them. He also has to observe notice periods. It remains to be seen whether the new regulations will prove successful in the future.
Gold, silver and platinum
Gold, silver and platinum in the form of bars and coins are often touted as a safe haven against inflation. But here, too, caution is advised. Precious metals are a risky form of investment. They offer no interest or dividends; profits are only made when the price of the precious metal rises. The best example of this is the gold rate. After a seemingly unstoppable rise that lasted more than ten years, the gold price collapsed in 2013 and lost a third of its value. Anyone who invests in precious metals should therefore only do so with a small proportion of their total assets. Many precious metals such as gold are quoted in US dollars, so investors are also taking a currency risk.
We have compared the advantages and disadvantages of investing in gold in more detail in a separate article. We will also be presenting specific products for investing in gold.
No hasty signing of Riester contracts
Riestern can be worthwhile for consumers who have children and are actually receiving the appropriate allowances. A high tax burden can also be reduced through the contributions to the Riester pension. But investors should also look carefully at which Riester-funded product they are concluding. The acquisition costs are sometimes high, especially for a pension insurance. The promotion must by no means be the only reason for the conclusion, what is important is that the product suits the investor.
In addition to the Riester subsidy, there are also other state subsidy models. These can also be worthwhile in principle (such as capital formation benefits) or in individual cases (such as company pension schemes).
Beware of high interest promises (wind parks, forest investments, real estate, etc.)
Particular caution applies to high interest promises. Current examples include investments in wind and solar parks, in the construction of commercial real estate, in ship funds or in forest investments. These are often advertised as high-yield and secure. As a rule, the following applies: There are only high returns for risky investments. In the worst case, there is a risk of total loss, i.e. the loss of all the money invested. It is even possible that investors will have to pour in fresh money.
The most important points at a glance:
- Spread your money!
- What do you want to achieve with the investment? Depending on the investment objective, very different forms of investment are suitable or unsuitable.
- An investment cannot be secure, available at all times and highly profitable at the same time. Beware of such offers!
- Never take more risks than you can take!
- Watch out for the cost! Interest rates and price jumps are of little value if they are eaten up again by high costs.
- Don't blindly trust your advisor! When it comes to things as important as your money, you shouldn't blindly trust anyone. Find out more from various sources and only buy investment products that you understand!
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