Why stocks? How to secure your pension!

In this article we introduce some important forms of investment for beginners and discuss the possible returns, costs and risks.

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Do you think your pension is safe?

Are you thinking of providing additional cover for your old age? Do you have some money available and want to invest it profitably? Why buy stocks?

There are a wide variety of investment options in the market. There are now so many that you can no longer see the forest for the trees. New investment opportunities are constantly being offered that promise a high return. After more than 28 years of experience in the field, I have to admit that I don't fully understand every new investment opportunity. I think that many feel the same and that is exactly what the providers intend to do.

Important forms of investment

In this article, I would like to introduce some important forms of investment for beginners and particularly focus on the possible return, the fees incurred and the risks. The list of investment forms is far from complete.

Savings book

The investment like in grandma’s times. The savings book is a safe investment, but without any significant interest. The interest rate is often below 0.1%. The savings book is out of date as an investment and is no longer recommended today.

Yield: below 0.1%
Cost: low
Risk: low

Overnight money account

The more modern way of saving. It is an interest-bearing account with no fixed term. You can always dispose of your money. The interest rate is usually between 0.1% - 0.7%.

Yield: between 0.1% and 0.7%
Cost: low
Risk: low

More information can be found at comparison.de or Finanztip.de.

Fixed deposit account

If you can do without your money for longer, the fixed deposit account is an alternative. You invest your money longer over a certain period of time. The interest that you can earn on fixed-term deposits is usually higher than the overnight interest. In contrast to overnight money, you cannot dispose of your money immediately, but only at the end of the investment period. The interest rate moves between 0.3% - 1.4%.

Yield: between 0.3% and 1.4%
Cost: low
Risk: low

More information can be found at comparison.de or Finanztip.de

Life insurance / pension insurance

Classic life and pension insurance are long-term savings products that are mostly used for old-age provision. With life insurance, the money saved is paid out as a one-off payment. Pension insurance is usually paid out as a lifelong pension.

With life insurance, I can also protect myself or relatives against risks such as death or disability. Classic life insurance and annuity insurance are no longer worthwhile. Interest rates are usually low and costs are high.

Yield: low
Cost: high
Risk: low

More information can be found at Finanztip.de.

Investment funds

In the case of mutual funds, an investment company collects money from investors and invests it, for example, in stocks, bonds, commodities or real estate. There are many different types of funds. In addition to equity funds and bond funds, there are also funds of funds, real estate funds or mixed funds. A fund manager actively selects the investments individually and of course has to be paid for them. One speaks of an active fund. Because of this, the fees for mutual funds are very high. Sometimes up to 5% fees.

Mutual funds are often recommended by banks and insurance companies, especially the funds offered by their own company. The consultants usually receive a high commission for this. If it is important to you that your advisor makes good money, then a mutual fund is for you. If it is more important to you to increase your own money, then I advise against a mutual fund and recommend an index fund (ETF).

Return: medium
Cost: high, up to 5% charges
Risk: medium

More information can be found at verbrauchzentrale.de.

Index funds (exchange-traded funds = ETF)

Index funds (ETF) track a well-known index. For example, with a DAX ETF, all shares in the index are bought, thus spreading the risk. When the DAX rises, so does the value of the index fund. This is a passive fund that is managed automatically. A fund manager or even a whole team is not necessary for the administration. This significantly reduces the costs.

ETFs are also very suitable for a savings plan to regularly save money and to build up wealth with stocks over the long term. Those who save in shares of the German share index DAX participate in the price development and the dividends of the major German stock market stocks. For example, with an investment period of 20 years, you could achieve an average return of 8.9 percent per year.

Yield: high
Cost: low
Risk: medium

More information can be found at Finanztip.de or verbrauchzentrale.de.

Stocks

A share represents a stake in a company. So whoever owns a share also owns a small part of the company and is thus directly affected by the success - or failure - of a company. As a shareholder, you can benefit in two ways:

1) If business is going well, co-owner will give you one Profit sharing per share (Dividend)
2) If the stock price goes up, you can Sell your company share at a profit

If the company is not doing so well, the stock price can fall and losses can result.

Shares are traded on the stock exchange. You have a rate that results from the buyer's demand and the seller's offer. It is important that you spread the risk with your investment and do not invest all of your assets in stocks!

Yield: high
Cost: medium
Risk: high

More information can be found at verbrauchzentrale.de.

Recommendations for beginners:

Hold up 3 net monthly salaries as daily allowanceIn order to avoid having to cancel the other investments in the event of unforeseen expenses (e.g. defective washing machine). Until you get there, I wouldn't buy individual stocks.
Use an ETF savings planto invest in stocks on a monthly basis and participate in the development of the overall market. Start with a monthly savings plan at a young age and view the investment as a long-term investment, e.g. for your pension.
Share your wealth and make the split based on how much risk you want to take.

Low risk -> low return

75% overnight money / time deposit
25% Index Funds (ETF) / stocks

Medium risk -> medium return

50% overnight money / time deposit
50% index funds (ETF) / stocks

High risk -> high return

25% overnight money / time deposit
75% index funds (ETF) / stocks

Why stocks?

There is no getting around the share or ETFs to achieve a good return. One thing must be clear to you: "A higher return requires a higher risk". However, the more you understand about stocks, the more you can reduce your risk. It is important to have discipline and to adhere to an investment system that is plausible and understandable for you.

There are a variety of strategies out there. Every stock market expert has his own method and swears by it. Unfortunately, there is no such thing as the perfect method that always works 100%. If anyone wants to make you know, then run away quickly.

One possible method is the well-known Levermann strategy that Ms. Susam Levermann published in her book “The relaxed way to riches”. A read that I can recommend to anyone starting out in stock. More on this in this article: The Levermann strategy easily explained. I personally loved this method because it is simple, understandable and objective.

And if you don't feel like searching the data that Ms. Levermann describes laboriously from the Internet, you can download the app from www.transparentshare.com try out. The app is also on the AppStore and Google Play Store available for download. TransparentShare rates stocks on a daily basis based on 12 objective key figures.

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