What could be an alternative for money?

How to best invest your money

Investing money smartly - now and in the future

According to the Federal Statistical Office, Germans put around 10% of their income aside each year and use it to save. The central question is always: "Where and how can I best invest my money?" and gold?

Unfortunately, there is no simple answer to this. Because the prerequisites that everyone brings with them are very different. Before you decide how you want to invest your money, it is worth clarifying a few basic questions.

  • Is the security of my invested money or the highest possible profit important to me?
  • How much money can I use my income for my investments?
  • How long can I do without the money I have invested?
  • What is my investment goal (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.

The magic triangle - influencing factors for 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 one another, as the so-called “magic investment triangle” illustrates.

The model shows that with serious investments only two of these three goals can be achieved. For example, you can expect a high return and liquidity with stocks and securities, but you have to take into account an increased risk. With a profitable and safe investment, the liquidity can be correspondingly lower.

Where can I best invest my money?

It all depends on you. Before you decide on the right investment, you always have to ask yourself: “What do I want? Security, a high return or quick liquidity? "The" magic triangle "can help you with your decision-making process. When choosing an investment, keep in mind that only two of the goals can be achieved. Therefore, you should critically question all investments, all of them for you promise three goals. In the following we give you an overview of possible investments and tips on how to invest your money.

The corona virus has brought the financial markets into a tailspin and unsettled many private investors. Are you wondering what the crisis means for your finances? Then we recommend our finances guide in times of crisis.

5 investment tips: which investment is right for me?

Not everyone is lucky enough to own a first edition of the Superman comic from 1938 as an investment. It was sold in 2014 for around 2.4 million euros. Or do you have an original Beatles autograph? If so, you could make a profit of more than € 30,000 on the sale. For most investors, much less original investments are considered. We have put together a selection of the various investment options with their advantages and disadvantages and answer the question "How can I still invest my money today?".

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 account has been around since the beginning of the 19th century. More than 70% of Germans have one, although it is no longer worth it. The savings book is a safe investment, but it also has a very poor interest rate. At many banks and savings banks, the interest rate is below 0.1%. Since the inflation rate exceeds the interest rate for savings books, your money even loses value. Today it is no longer recommended as an investment.

  • very low interest
  • little flexibility
  • no risk
Call money account - the modern way of saving

Call money is a very flexible form of investment. A call money account is an interest-bearing account with no fixed term. So you can have your money at all times. The interest rate is usually higher than with a savings account. However, the interest rate is not fixed, it can change up or down on a daily basis. By the way, if you transfer your overnight money account to your child, you can save taxes. Because your child is entitled to its own tax exemption for investment income of € 801. After the transfer, the profits from this system will be settled through your child. However, several legal requirements must be observed for this, which is why it is best to consult a tax advisor.

  • very flexible
  • Interest not fixed
  • small risk

Fixed deposit account - suitable if you can do without your money for a longer period of time

With a fixed-term deposit account, you invest your money over a certain period of time. The duration is at least one month and a maximum of 10 years. This means that you will not be able to access your money during this time. But the interest is higher than with a call money account, as the following comparison shows.

Comparison of the interest income from overnight money and fixed-term deposits

 Overnight money accountFixed deposit accountFixed deposit account
Investment amount10.000 €10.000 €10.000 €
running timeavailable daily3 years5 years
Best interest0,27 %1,15 %1,40 %
Interest income € 2.25 per month345 €700 €

The table shows: the longer you invest your money, the higher the interest.

  • fixed interest rate
  • guaranteed profit
  • long term investment only
Foreign currency account - high interest rates abroad possible

With a foreign currency account, you invest your money with German banks in foreign currencies (foreign exchange). With these foreign exchange accounts, you can achieve higher savings rates than with the overnight money account. However, you often have to pay conversion fees that the banks charge when you buy and sell the currency. And there is risk involved in investing in forex. Because the exchange rate between the euro and the foreign currency can change and thus reduce your profit.

  • good interest
  • high risk as exchange rate losses are possible
  • high fee burden

Another option is to invest money directly in another EU country. You can invest both overnight and fixed-term deposits with foreign banks. This can be done easily via intermediary platforms such as Weltsparen, Savedo or Zinspilot. In some countries such as France or Sweden you can get higher interest rates on your fixed-term deposits in this way than in Germany, namely up to 1.5%.

Child accounts - still offer reasonable interest

You can earn decent interest with a child account. Anyone who has children has an additional opportunity to invest money. The branch banks focus on early customer loyalty and lure with interest of up to 3% for amounts up to € 500 for child accounts. In this way, your offspring will also learn how financial transactions work.

  • good interest
  • small risk
  • Investment amount limited

Home loan savings - not always useful

The home loan and savings contract is very popular in Germany. You can pursue two goals when it comes to home savings. Either building a property or investing and saving. However, a home loan and savings contract is only worthwhile as a savings investment if you choose a tariff that includes high credit interest and you also receive capital-building benefits from the state as subsidies. They usually do better with investments such as overnight money or fixed-term deposits.

  • partially useful as construction financing
  • hardly flexible
  • rather not suitable as a pure investment
Endowment life insurance - it is currently not worth taking out

Capital-forming life insurance is a combination of protection and investment. That 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 the contracts usually have very long terms, for example 12 years. Anyone who wants to get out of the contract early in order to get the money saved must expect losses. In addition, the savings income is partially reduced again, since the insurance retains a share to cover the risk of death.

  • very long runtimes
  • Early exit losses
  • if you want to invest money, you are better off elsewhere

Investment tip 2: invest money in real estate

Real estate - use it as an income property or invest money as an investor

For a long time, investments in real estate or construction projects were associated with a high investment sum, as you as the investor usually financed an entire property on your own. Crowdinvesting is still a relatively new alternative to buying your own property. Companies are looking for a large number of individual investors who can therefore participate with small amounts of € 500 or more. The maximum limit is € 10,000. The capital you have paid in will be returned to you after a manageable period of a few months or a few years with interest.

Portals such as Bergfürst or Exporo * specialize in arranging crowd investing projects. There you will find a wide range of real estate. You invest free of charge and can expect a return of between 5–6%.

Investment tip 3: invest money in securities

Shares - not for the inexperienced

When you buy shares, you buy a stake in the respective company. As the value of the company increases, so does the value of your stock. As a shareholder, you will also receive a bonus at the end of the year, the dividend. But nobody can guarantee that the company's value will really increase. It could just as easily go down and your stock depreciated. Trading stocks requires precise knowledge of the environment and carries a high level of risk. Getting into the stocks business is easy, however. First, you open a custody account with a bank of your choice. You then decide on certain shares or blocks of shares and buy them through your portfolio.

  • very risky investment opportunity
  • high profits possible
  • long-term investments reduce risks

Anyone who invests money in stocks should follow the tip of major investor, entrepreneur and investment guru Warren Buffet: "Only invest in stocks whose business you understand." He describes a simple principle. When you buy stocks, you need to understand what the company is doing. Only then can you understand and evaluate the business model.

Bonds and Pfandbriefe - secure gel investments with little interest

Bonds are seen as a more secure investment. These are securities from which a company or a state borrows money, which is why they are also known as government bonds. As the buyer of these bonds, you grant the company or the state a loan and receive interest in return. The risk is that the state or the company could go bankrupt. Since this is rather unlikely, the interest rate level is unattractive and bonds are currently not bringing much return. The interest on government bonds has also been falling for years. The Pfandbrief is a special type of bond. This is a bond that is issued by a Pfandbrief bank. They often have better interest rates than bonds.

  • safe investment
  • low profit
  • for security-conscious investors

Derivatives and certificates - investing money for professionals

With derivatives you go far into the field of speculation. Because these are bets on future developments in stocks, raw materials or foreign exchange. These are very complex investment products. Although high profits can be made quickly with derivatives, the risk for you as an investor of losing your money is also very high. Certificates are a complicated form of derivatives. Your return is based on the development of selected stock market products.

  • very speculative, therefore high risk
  • high profits possible
  • only for experienced investors with specialist knowledge

Green bonds - the ecological investment

Green bonds are bonds with a special feature: They invest your money in projects that are particularly sustainable and climate-friendly. This can be the construction of wind turbines, for example. However, there are no regulations that stipulate 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 stocks. This reduces the risk of loss. After all, it is unlikely that all of the companies represented in the fund will lose their value at the same time. A fund manager runs the fund and organizes the various investments. A special form are ETFs (Exchange Trades Funds), also called index funds. They replicate the development of stock market indices such as the Dax or the Nikkei. ETFs are not controlled by a manager, which means that there are no costs for managing the fund. If you only want to invest small amounts in ETFs, you can start with as little as € 100.

  • reduced risk on the stock market
  • ETFs suitable for small investors
  • suitable for beginners

“Back and forth empties pockets” - this old stock market adage still applies. If you change your investment strategy too often, you run the risk of not having a strategy at all. It is better to create a savings plan once and then implement it.

Investment tip 4: Real assets as a safe investment

Art, antiques, musical instruments, cars, shoes, bags, wine

Real assets are assets that have a certain value and for which there is a demand. They are also known as alternative investments. This results in a broad field: real assets can be real estate and raw materials, precious metals and collectibles. A painting by an as yet unknown artist can be extremely valuable in 30 years, and a rare pair of sneakers can be in greater demand from year to year. Many investors buy wine or whiskey not to drink but to sell for a profit. Rare oldtimers or limited special models from brands such as Porsche, Ferrari and Mercedes have been increasing in value for years. You can even invest in these collectibles together with other interested parties. An example: The Hamburg company Momentum automotive * offers the opportunity to buy a Ferrari Monza SP1 or an Aston Martin Valkyrie. It is a special form of equity crowdfunding that you can participate in for as little as € 100. You will get back your capital plus a return if the vehicle is sold for a profit after a predetermined period of time.

For real assets as a safe investment, however, a high level of expertise and a large portion of luck are required.

  • very high profits possible
  • extremely long-term investment
  • doable for insiders with expertise
Gold - the tried and tested long-running favorite

The precious metal has been a constant investment opportunity for decades. Gold is particularly popular as a hedge in times of crisis.

An advantage is the tax exemption that you get if you buy gold and have owned it for more than 1 year and then sell it. One disadvantage, of course, is storage. A safe deposit box or a secure safe is required. Which in turn comes with costs that reduce your bottom line. Whether the investment in gold is worthwhile must be carefully considered. Even if the gold price rises steadily, the return is not really profitable. If you really want to invest your money in gold, you can use gold stocks or gold ETFs as an alternative.

  • safe investment
  • makes sense as part of your investment
  • high expenditure for storage

Investment tip 5: Special forms of investment and current trends in investing money

Bitcoins - the digital currency as an investment

Bitcoins are a virtual currency on the internet. You can purchase bitcoins online as a means of payment and use them to shop in certain shops. The price for a Bitcoin has risen by a few 100% in just a few months. However, it fell a few times in between. In March 2021 it reached a record high and was over € 45,000 for one Bitcoin. If you want to make a profit with Bitcoins, you have to be quick, have strong nerves and deal with the current development of this investment on a daily basis.

  • high profits possible in a short time
  • great risks from fluctuations
  • if you like to gamble, this is the right place

Crowdfunding - supporting young projects and companies

If you invest money in crowdfunding, you become part of a group (crowd) that financially supports a young project or company. Many ideas and projects only have a chance of success if they receive some kind of start-up funding in this way. In return, you will receive something in return, depending on the type of project: this can be premiere tickets (for an artistic project), attractive interest rates (if the project operator uses crowdfunding as an alternative to bank loans) or profit sharing.

An investment tip in the area of ​​crowdfunding is, for example, the eROCKIT * campaign. With your investment amount, you directly support the production of eROCKIT vehicles in the factory in Hennigsdorf near Berlin.These are new types of pedal-operated electric motorcycles that can be driven like a bicycle, but accelerate like a motorcycle. You can invest between € 100 and € 25,000 and receive a fixed interest rate of 5.4% over 3 years.

The cornerstones of crowdfunding:

  • some risk taking is necessary
  • long-term investment (usually 3-10 years)
  • high returns possible

Investing in FinTechs - investments with an uncertain future

FinTechs (short for financial technology) are trying to disrupt the traditional banking and financial services market. More and more startups are offering innovative products and are thus becoming competitors of established companies. Often there are large corporations behind these startups that need a lot of initial capital. You can acquire shares in listed investment companies and thus indirectly support FinTechs. But since nobody knows exactly which startup will still exist in 3 years, the risk is very high.

  • interesting field but risky
  • good profits possible
  • Expertise required

Acquire cooperative shares - the safe investment

As an alternative to traditional financial investments, investments in cooperative shares currently offer significantly higher interest rates than overnight money or fixed-term deposits. There are cooperatives in different areas such as agriculture, housing, banking or the energy sector. If you own shares in the cooperative, you are both a member and co-owner of the cooperative. If profits are made by the cooperative, you will receive these proportionally. Cooperative shares as a financial investment are recommended for security-oriented investors, as the bankruptcy rate is just 0.1%. However, in the event of bankruptcy, you have no legal right to compensation.

  • traditional form of investment
  • very safe investment
  • pays off with long-term investments

10 Investment Tips: Here's How To Get Your Money Right

Tip 1: Pay off debts first, then invest money

There are few investments that allow a higher return than you pay interest on an existing loan. That is why it is usually worthwhile to pay off existing debts first and then invest your money. By the way: the overdraft facility is also a loan. Here, an average of almost 10% interest is due.

Tip 2: Your risk increases with the size of the return

Many investors want to achieve the highest possible profit. This is possible, for example, with stocks or funds. However, this also increases the risk. Because these securities can also crash and lose their value. Or to put it another way: with an investment with low profits, your risk decreases.

The following overview summarizes the forms of investment described above under the aspect of security.

Which form of investment is a safe investment?

Safe investmentLess secure investment
Savings bookshares
Fixed-term and overnight accountsFunds
Child accountsForeign currency account
ETFsDerivatives
Real estate and equity crowdfundingCertificates
Bonds and PfandbriefeReal assets such as art, antiques, musical instruments
Cooperative sharesInvesting in FinTechs
gold Bitcoins

Tip 3: A broad diversification of your investments protects against losses

For example, if you invest money in stocks 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 dividing your investment into thirds is a good option. So around a third each in equity funds, in fixed-term deposits and in overnight money.

Tip 4: patience often pays off

There are frequent fluctuations, for example on the stock markets. Wait and see, this will make up for possible losses over the years.

Tip 5: Don't invest more than 10% of your income

With a gross income of € 4,000, that's € 400. If the amount of money invested is too high, you will lack money for everyday life. There is a risk that you will no longer be able to cope with your regular expenses.

Tip 6: think of a hidden reserve

There can be unforeseen expenses at any time. That is why experts recommend a reserve of around 3-6 months' salary, which you can reach at any time.

Tip 7: Pay attention to the additional costs of your investment

For some forms of investment such as equity funds, administration costs are due. These can eat up part of your profit. But even low costs, such as account management fees, can reduce the profit on your investment. It is best to always keep an eye on these additional costs.

Tip 8: Those who invest early can achieve more profit

For young people, the subject of investments is often not yet important. The motto is: First complete an apprenticeship or degree, then start your career and start a family. That is why many do not start investing their money until they are in their late 30s or mid-40s. But then a few years have already been given away in which invested money can yield interest. Those who have the opportunity to invest at a young age are ahead of the curve, especially when it comes to long-term investments.

Tip 9: Take your specific life situation into account

Do you want children? Are you planning to build a house? Do you have a fixed-term employment contract? Depending on the situation you are in, other forms of financial investment make sense. If you are not sure how much your income will be in six months, it is risky to choose long-term investments.

Tip 10: a robo-advisor can be useful

How do I best invest my money? Finding the right investment strategy is difficult, especially for young and inexperienced investors. So-called robo-advisors, i.e. internet-based system robots, can help you. You do not determine your investment strategy personally; instead, based on specific questions, you will be recommended an investment by a robo-advisor such as easyfolio, whitebox or cashboard. However, as an investor, you have to pay fees.

Keep an eye on Exchange Traded Funds (ETFs). These index funds are growing in popularity because they are simple and inexpensive. They simulate the development of stock market indices such as the Dax or the Eurostoxx 50 and get by without a fund manager. This eliminates the costs of managing the fund. Another advantage: You can exit an ETF at any time.