ETFs, stocks or cryptocurrency? It is not that easy to invest money profitably. Here an expert explains what beginners need to consider.
Investing Money: An expert reveals investment tips that beginners should consider when investing.
Word has got around that you should not only rely on your pension insurance but also invest money privately. But how should you actually save? There is hardly any interest on overnight money accounts, savings books and building society contracts. Many still rely on these models because they are still considered safe forms of investment.
“The problem is that the supposedly safe options such as savings accounts or life insurance today cost more money than they actually bring in,” says Nils-Hendrik Höcker, BUX Country Head for Germany and Austria. “This is primarily due to the European Union’s interest rate policy. It is simply no longer worthwhile for the banks to give higher interest rates to customers. ” In addition, one should always bear in mind that money will lose value due to inflation: Those who save with no or very low interest rates actually lose money. (Worth Reading: XRP Price Prediction: Still bullish and surging toward $0.75 support at $0.42 – Weekly Crypto Technical Analysis (XRP/USDT))
Experts advise: invest money in the stock market
Those who do not even know how to alternatively invest money are often overwhelmed. Many experts now recommend stocks as old-age security, for example in the form of so-called ETFs – including consumer advice centers. The abbreviation ETF stands for Exchange-Traded Fund, i.e. an exchange-traded index fund. An ETF is bought and sold on the stock exchange, much like a share. It replicates a specific index on the stock exchange. For example, if you opt for a DAX ETF, you can invest in the DAX without having to buy shares in all companies included in the DAX. There are also thematic ETFs, for example investors can invest in sustainable companies.
“This means that an investor invests his money in many different companies at the same time – without major additional costs,” says Höcker. “The wide diversification offsets profits and losses and reduces the risk for investors.” For example, experts at an independent money portal have calculated that someone who invests for 15 years in an MSCI World ETF that replicates the largest companies in the world achieves an average return of eight percent – despite all the fluctuations. “That is significantly more than you get for overnight money, savings book or building society loan agreement.” (Read More: Bitcoin (BTC) Price Prediction 2021-2025: Bloomberg analyst predicts $50,000 as next stop for Bitcoin)
Most ETFs are good for beginners
Höcker also advises ETFs initially. “They are an option for many who want to start investing with the lowest possible risk of loss.” ETFs are very broadly diversified, which minimizes the risk of losses. “In addition, you invest over a period of 10 to 15 years,” says Höcker. “The costs also remain low.”
If you have more experience with investing, you can also think about stocks. Investment models such as cryptocurrencies, on the other hand, are more suitable for experts. “They are very complex and are more suitable for very experienced investors,” says Höcker. “But that can also be the case with some stocks.”
Build a buffer before investing
In any case, you shouldn’t invest blindly, but first of all build up a certain financial buffer. This is important so that you have enough money for unforeseen expenses – for example for an expensive car repair. “Three times the net income is often given here as a guideline,” says Höcker. “If you have saved enough, you can start investing.”
The expert advises diversifying your portfolio broadly when investing, i.e. either choosing an ETF that covers many different companies or buying stocks from many different industries. “Every investor should make sure to pay the lowest possible commission for the investment,” says Höcker. Therefore, direct banks or so-called neo brokers can be a good alternative. (Read More: XRP Price Prediction: Live Update XRP/USD While Top Exchanges Moved Almost 100 Million XRP)
More research is needed with stocks
Anyone who decides in favor of shares should do their research before buying and ideally also take a look at the company’s annual report, says the expert: What is the company’s balance sheet like, how is the company’s income statement? What is the market environment like and what does the management report say?
“In addition to this information, an investor should also deal with the product,” advises Höcker. For example, if you as a user value the advantages of Apple products, you might also value the company as a shareholder. This can be applied to many areas. “If I have decided on a solar system from a certain company, then I am convinced of the product,” he says. “Then maybe the stock is also interesting for me.”
Typical beginner mistake: impatience
However, many beginners in the financial market lack patience – and they tend to sell stocks or ETFs very quickly if they do not make a profit quickly enough or if the prices fall for a while. However, this is not advisable: “A well-diversified number of stocks or ETFs that develop over a long period of time promise significantly more stable profits,” says Höcker. So patience is required. “Anyone who trades stocks prematurely or too often is much more likely to lose money.”
Many beginners also believe that an investment is not worthwhile for them because they can only invest small amounts. “That is one of the biggest misconceptions,” says the money expert. “With a little time, a small savings rate of 50 euros a month with compound interest and dividend payments from the company can grow to a considerable sum.”
Think carefully about your retirement provision
Many also wonder what part of their retirement provision they should ideally cover with stocks. “There is no magic formula here that works in every case and for everyone,” says Höcker. In principle, most people in Germany receive a pension at the end of their working life. “But this is not enough, especially for many younger people.”
Ideally, the pension should be around 80 percent of net income. For example, if you have a net income of around 2,400 euros, you should have around 1,900 euros available when you are old. “If I receive a pension of EUR 1,000 from the state, that means that I am missing EUR 900 per month, which I have to provide privately,” says the expert. That would be 324,000 euros in 30 years. “That sounds like a lot, but for someone who starts investing early, it is doable.”
As a rule of thumb, it is often recommended to save ten percent of your income. “But it all depends on the budget, how well this is actually feasible,” says Höcker. “If these ten percent are possible, they are in good hands in a broadly diversified equity portfolio or ETF – even if there is always a certain risk of loss.”