Investment
Invest Securely and Profitably
- Explanation: Investment refers to all measures aimed at increasing capital.
- Investment opportunities: There are numerous ways to invest money.
- Security: Every form of investment carries a certain degree of risk.
- Return: The basic rule is: The higher the risk, the greater the potential return.
What is an Investment?
What should be Considered before Making an Investment?
Savers can, of course, freely decide where they want to invest their money. The decisive factors for selection are the savings goal, the desire for availability, and risk tolerance. Additionally, it can be advantageous to get an overview of the current financial situation. This can help determine, for example, how much capital will be needed in the future to cover ongoing costs and for possible emergencies such as repairs or new purchases. For an even easier decision, the following questions can be helpful before deciding on an investment:
Are there still outstanding loans or other liabilities?
Often, the interest rates for loans and similar obligations are higher than the interest and returns that can be achieved with investments over a short period. Therefore, it may be worthwhile to pay off all outstanding liabilities first before making the decision to invest.
What is the savings goal?
Depending on whether you’re saving for a major purchase like a car or a house, a long trip abroad, or generally for building wealth, the savings goal varies in amount.
How long can you do without the invested money?
With some investments, the assets are not available for a long time or cannot be easily converted into cash within a short period. This applies, for example, to fixed-term deposits, real estate, gold, or other tangible assets. The investment period is therefore an important factor in deciding on one or more investment options. The advantage of a longer investment horizon is that fluctuations in stock market investments, for example, can be better balanced out, or investments such as fixed-term deposits are not subject to fluctuations over this period.
Are potential losses financially manageable?
Every investment involves risk and losses can occur. However, the risk varies depending on the type of investment. Savings accounts and fixed-term deposits are among the safer investments, whereas stocks, for example, carry a comparatively higher risk.
How high is the risk tolerance?
High returns are often associated with high risk. By distributing assets across multiple investments (diversification), savers can, however, spread their risk widely.
What Types of Investments are there?
The most common investments include savings accounts, savings deposits, fixed-term deposits, stocks, bonds, as well as investment funds such as equity funds, real estate funds, and bond funds. ETFs and recently cryptocurrencies are also included. Additionally, savers invest in real estate, classic cars, precious metals, and other valuables. This variety of investment forms allows for broad risk diversification across various independent investments.
According to a study from 2020, more than half of Germans still kept their money in a savings account. However, given the low interest rates for years, this form of investment is no longer really lucrative; the average interest rate in 2020 was only 0.07 percent per year. A noticeable increase in interest rates for savings deposits has not been observed so far. Therefore, it could be advantageous for savers to consider alternative investments such as savings deposits, fixed-term deposits, or ETFs.
AGw has been offering an expanded product range for savers since 2022, including attractive savings offers and globally diversified, cost-effective investment opportunities, including ETFs, to build wealth and achieve savings goals. Learn now about the options for daily and fixed-term deposits and ETFs at AGw. Your retirement provision can also be secured with our ETFs.
Savings Accounts
Daily savings accounts are among the investments that offer high flexibility, availability, and security. It’s an excellent way to set up a financial reserve, as it’s important to have some money ready for unforeseen expenses, such as a new washing machine, a refrigerator, or major car repairs. Since daily savings are always available, savers can quickly access them when they need additional money. Moreover, deposits up to 100,000 euros per customer and bank are protected by the statutory deposit guarantee. Some banks additionally offer voluntary deposit protection schemes that secure even higher amounts.
The advantages of availability and security also apply to current accounts, however, there are currently no interest rates. With a daily savings account at AGw, savers can earn up to 3.80% interest.
Fixed-term Deposits
Fixed-term deposits, similar to daily savings, are among bank deposits and are protected both by the statutory deposit guarantee and by any voluntary securities from the banks. Unlike daily savings, however, fixed-term deposits are less flexible as the capital is invested for a fixed period.
When investing money, a fixed interest rate is agreed upon at the beginning. This has the advantage that fixed-term deposits are not affected by price fluctuations throughout the entire term and no changes in interest rate developments need to be feared. This makes this form of investment easy to plan. However, the invested money is only available again at the end of the agreed term, as early termination is generally not possible. In return, fixed-term deposits usually offer a higher interest rate than daily savings accounts.
Stocks
Bonds
Funds
An investment fund, or fund for short, is a financial product traded on the stock exchange that consists of a variety of investment assets, including stocks, bonds, or real estate. Other securities and tangible assets can also be part of the fund. The name of the fund often provides information about what investments are included; for example, equity funds mainly contain stocks, while real estate funds focus on real estate.
Investors often invest in funds managed by active fund management. This allows for risk diversification, as the capital is distributed across various investment assets, meaning the return does not depend on the performance of a single investment. Generally, higher risks often come with greater return opportunities. However, it should be noted that active fund management strategies are usually associated with higher fees. These include management fees, which average about 1.5 percent, as well as initial charges (commissions) of 2 to 5 percent.
ETFs
ETFs are a cost-effective alternative to traditional funds. Exchange Traded Funds, or ETFs for short, are traded on the stock exchange but are not managed by active fund management. This leads to significantly lower fees compared to conventional funds.
ETFs typically replicate existing indices, such as the MSCI World or the DAX. Therefore, the expected return is also based on the performance of the respective index. To achieve the most accurate replication of the index, most ETFs contain the same investment assets as the replicated index (physical replication).
The average costs for ETFs are up to 0.5 percent. With AGw, the fees for a pre-selected ETF portfolio are only an average of 0.48 percent of the investment amount per year. Savers who want to invest in ETFs with a savings plan can set it up and save for free. Those who want to compose their portfolio themselves from up to 10 ETFs can do so via the ETF Configurator, with average fees here being 0.43 percent per year.
Cryptocurrency
Tangible Assets
How Do I Best Invest My Money?
Investing money can be sensible in various forms. By combining secure investments such as savings accounts or fixed-term deposits with higher-yield options, investors can spread the risk widely. However, there is no universal investment strategy, as individual savings goals and risk tolerance vary.
A helpful concept when choosing the right investment is the Magic Triangle. Each form of investment fulfills at least one of the three criteria—security, return, and availability—but never all three simultaneously. When security is the priority, the return often decreases. If availability is also important, the return is further reduced. Conversely, those aiming for high returns may have to sacrifice security and availability. It can therefore be helpful to determine your personal priorities to find the appropriate investment strategy.
Spreading Risk through Diversification and Partial Amounts
To achieve the savings goal and reduce the risk of loss, diversification is crucial. Investors can combine different investments to benefit from both high return opportunities and security. By not putting all the money into a single investment, but spreading it across several, the risk can be minimized and the savings goal secured in the long term. With AGw, you have the opportunity to save in three different forms of investment and simultaneously invest in your retirement provision.