Saving money or investing - what makes more sense?
Many people would like to invest money - in stocks or maybe even fixed-rate
bonds and alternative investments . However, they often have too much respect
for investing on the stock exchange and other asset classes that go beyond
saving money in the checking account or savings book.
This way they miss out on great profit opportunities. This is because, above
all, equity investments in particular have achieved significantly higher
long-term returns compared to the interest on savings deposits, even with a
low-risk investment strategy. It is wrong to think that only professionals or
rich people can invest money on the stock exchange. Of course, the decision
and implementation of these investments takes time and initiative - but anyone
can muster that.
This article deals with the basic knowledge for investing capital on the stock
exchange. General information on finance can be found here: Investing money
for beginners.
What is the difference between the bank's investment products and those of
the stock exchange?
Banks often offer overnight money and time deposits as ways to invest money.
The advantage of these security-oriented investments is that their risk is
low : Money in the overnight deposit account or fixed-term deposit account,
for example, is covered by the European deposit insurance fund up to an
amount of € 100,000.
If, on the other hand, you invest the money in a company on the stock
exchange, you run the risk that these companies will become insolvent at a
later date and you will lose money.
Bank deposits such as call money accounts and time deposit accounts are
therefore something for investors who are more concerned about security. In
contrast, thanks to dividends or profits from price increases, they can
achieve much higher interest rates and returns on their money on the stock
exchange.
What are the best ways to invest money?
There are many different investment products on the stock exchange in which
you can invest money. They can be divided into:
1. ETF (Exchange Traded Funds):
Beginners are often recommended ETF , also called index funds. These are
equity funds that are not actively managed by a manager, but instead
passively invest in an equity index - such as the DAX - and thus replicate a
market as a whole. With an ETF, the investor benefits from a positive
overall development of the market - and does not work “against” the market
like a fund manager.
2. Funds:
On the other hand, if you want to try to beat the average return on the
market, you can invest money in an (actively managed) fund . This represents
a basket of selected investment forms, so to speak, and is managed by a fund
manager.
Depending on which financial investments are bundled in the respective
investment fund, it is referred to as an equity fund, mixed fund, real
estate fund etc.
3. Shares:
If you prefer to choose your own shares , it makes sense to invest money in
individual stocks. Here you have to be careful, however, that you spread the
risk on securities of several different companies and achieve a sufficient
spread of the risks within the investment.
4. Bonds:
In addition to stocks, money can also be invested in individual bonds. These
are not listed company shares, but rather fixed-interest bonds from
companies or countries (e.g. federal bonds ). Profits are not generated with
dividends or exchange rate fluctuations, but are paid on the borrowed money
like a loan.
5. Leverage products:
For speculators who are willing to take higher risks when investing and play
more intensely with their luck, leverage products such as derivatives ,
certificates or futures can be interesting.
This type of investment is particularly risky and many a trader has already
lost a fortune with complex financial products. Therefore, when investing,
you should deal very intensively with the trading strategies and test them
in demo accounts or sample portfolios before investing real money.
How and where can you invest money on the stock exchange?
You cannot simply “shop” for shares or investment funds directly on the
stock exchange. Trading these investments is only possible with a share
deposit and an associated clearing account. This is, so to speak, an account
for money to be invested, while the custody account is a depository for the
purchased securities.
Such a depository can be opened in the classic way at a bank in a branch or
online. Alternatively, there are online brokers . Before you decide on a
provider, you should definitely compare the costs. You can save a lot of
money here . Generally, online brokerage fees are generally cheaper.
What about the investment duration on the stock exchange?
Before each investment, you have to ask yourself how long you can invest or
lack the money. Based on this, an investment with the appropriate investment
duration can be determined.
For example, investors invest between three and seven years in bonds. The
rule applies: the more years, the higher the interest.
However, many investments do not have a maximum term, for example shares or
most funds. In this case, the investment is terminated by the resale of the
securities. If stocks or shares in a fund are worth more at the time of sale
than at the time of acquisition, the investor benefits from price increases.
How much money should I invest on the stock exchange?
There are basically no upper limits for shares - if you have a lot of money
available and want to invest, the principle applies: the more the better .
However, certain minimum investments should be made. There are reasons for
this:
1. Costs reduce returns:
High investment amounts reduce the proportionate costs of investing capital,
which may arise from order fees.
Because of these costs, investors should not invest less than € 1,000 in a
share. Otherwise, the costs are disproportionately high compared to the
investment amount and can only be recovered through a high return . So there
are usually no mandatory, but logically reasonable, minimum investments in
shares.
2.Unilateral investments increase the risks:
If you invest money in individual stocks, you shouldn't put everything on
one horse: invest your money in different companies and industries and
diversify your capital investment in order to achieve sufficient risk
diversification with a well-designed portfolio .
In addition, you should not only invest your money on the stock exchange.
With a well thought-out asset allocation , you not only spread the risk
across various securities, but across asset classes such as savings accounts
, real estate or commodities. Such a balanced portfolio with sufficient
diversification naturally requires a lot of money.
3.The more time, the better:
Only invest as much money as you really have at your disposal . Bear in mind
that short investment periods often do not compensate for price falls “in
time”, making a loss on sale more likely. The situation is different for
longer investment periods . So if you want to invest money in a particular
purchase, property, or children's education over the next few years, you
shouldn't invest the money in stocks.
Can you invest on the stock exchange with little money?
If you want to get started with a small investment, it makes sense to invest
money in equity funds or ETFs. The reason for this is that these financial
products are already scattered across different equity stocks. ETFs are also
particularly inexpensive.
Investors can also invest smaller amounts in stocks, funds, ETFs, etc. if
they regularly deposit money into a savings plan , for example monthly .
With small amounts starting at € 10 a month, it is possible for private
investors to build up assets on the stock exchange .
Another advantage of savings plans is that you don't have to pay attention
to the ideal timing to invest. Since you spread your money over a long
period of time, the shares are purchased at an average price. Although this
is above the cheapest price within a certain period, it is also below the
most expensive ( "cost average effect" ).
All in all, there are various options - also for private investors - to
invest money on the stock exchange. A solid basic knowledge of the investor
with regard to the individual investment products is the first step to
long-term success.
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