According to the Deutsche Bundesbank, private households in Germany had, at the end of 2023, financial assets worth over seven billion euro. The majority of this money (41.5 percent) is sitting in checking and call accounts, savings accounts or even hidden under mattresses. Only 12.5 percent of financial assets are invested in shares, while a further 12.5 percent are in investment funds, even though investing in shares can help build wealth over time. Here’s what to consider when investing money in shares or funds:
1. Open a securities account
You will need a securities account to invest in shares and funds. You can open such an account with your regular bank, a different bank or using an online broker. Banks charge investors yearly account fees to manage investment portfolios. These differ from bank to bank, and some providers even offer no-fee accounts. It makes sense, therefore, to compare costs before deciding where to open an account. If you wish to regularly invest smaller amounts into shares, savings funds that invest in equity funds or ETFs are an obvious choice. As a general rule, you can invest amounts beginning at 25 euro a month in diversified shares.
2. Only invest a portion of your savings
It’s best to only invest a portion of your savings, to ensure that you still have enough financial reserves accessible at short notice. Money for repairs (for your apartment, house or more) and emergencies, as well as money for larger purchases you plan to make soon, should be saved in your checking or call accounts.
As a new investor on the capital markets, it is very important that you do not give in to temptation and buy shares on credit. If prices fall and your investment does not pay off, you could end up facing serious financial problems.
3. Percentage of shares in your securities account
One rule of thumb is 100 minus your age. That’s the percentage of shares you should have in your securities account. The older you get, the lower the percentage of shares.
The idea behind this rule is that the older you are, the less time you have to ride out downturns in share prices. This rule probably does not apply if you are investing primarily to leave something behind for your loved ones, as the investment period is different in this case. It’s therefore important to take your individual situation into account and perhaps to seek out financial advice. This is because the percentage of shares in your securities account will depend on the investment period, how diversified they are and how much risk you are willing and able to accept given your current financial situation.
4. Invest long-term and diversify
The market fluctuates constantly. It therefore makes sense to select a long investment period, at least ten years. This will allow you to ride out major downturns if necessary. In addition, it’s a good idea to spread your investments across shares in a variety of industries and regions. A diversified portfolio minimises the risk of losses.
5. Avoid restructuring, unless you are closing out your investments.
Buying and selling shares incurs fees. That’s why it’s important to pay attention to minimum fees and avoid constantly restructuring your portfolio: buying and selling is often a great way to empty your pockets!
As with everything, however, there is an exception to the rule: in this case if you know you will need the money at a specific time. After all, you don’t want your money to be subject to a market downturn right as you plan to withdraw it. So, three to five years before you will need the money, it’s time to reduce investment risks in your portfolio, by slowly restructuring. That means selling off your riskier positions and purchasing more conservative investment instruments.
And of course, be wary of ostensibly ‘sure-fire’ investment tips, particularly if they are being spread by email or cold calling. Instead, book an appointment with your bank to discuss your investment strategy. Your bank consultant can provide investment advice that matches your future plans and risk profile.
