Comparison of financial investments

Where to put the savings? And how can a meaningful old-age provision be built up?

If financial investments are compared, individual preferences can be worked out quickly. Ideally, an investment strategy that promises success and generates a respectable return will emerge. Anyone looking at financial investments in comparison should in any case know the entire range of possibilities and also pay attention to diversification.

Regardless of how lucrative certain financial investments may appear, you should not put everything on one card, but invest in different areas. Basically, a distinction can be made between safe investments at fixed and guaranteed interest rates and opportunities with more risks and higher profit opportunities. Both have advantages and disadvantages which can be clearly named and explained.

A comparison of secure investments

Safer investments have lost considerable importance in recent years. Although many older Germans still rely on savings books, life insurance and the like, these forms of investment hardly have a chance with younger people.

The reason lies in the interest rate policy, which ensures sustained low interest rates. Borrower and borrower may be pleased that, however, for the investment of funds interest rates are in the range of no more than one per cent simply too little.

Mind you: interest rates can fluctuate, but have been below the inflation rate for years with fixed-term deposits or savings books. What does that mean? Quite simply, the mini-interests earned are “eaten up” again by the general rate of inflation, resulting in a loss. Even more serious are the effects of low interest rates in life insurance.

Where in the second half of the 1990s a guaranteed interest rate level of four percent was still possible, the Federal Ministry of Finance has now set a maximum of 0.9 percent. If one considers that commissions and costs for administration must also be paid, life insurance policies with guaranteed interest rates, which are taken out today, usually generate less than half a percent.

The previously very popular Bundesschatzbriefe were discontinued on 31 December 2012 and government bonds now even offer negative yields in many countries. Examples of this are France, Finland, Austria, the Netherlands and Germany, whose government bonds bear interest at minus 0.34 percent in 2019.

In this context, only crisis-ridden Greece still promises 2.15 percent with a ten-year maturity. There is currently no end in sight to the low interest rates and the ECB is unlikely to do so until mid-2020 at the earliest. If one compares the financial investments, fixed investments at best perform moderately.

Silver, gold and foreign exchange

From a certain point of view, silver and gold also belong to the safe investments in comparison. With both precious metals, one acquires something lasting that has defied every crisis so far. Gold and silver have been tried and tested means of payment since ancient times and can be quickly exchanged for the respective national currency at banks and exchange offices.

In this respect, maximum liquidity is provided and storage with physical gold and silver is also possible without any problems. A 100 gram bar fits in every trouser pocket and already cost around 4,450 euros in September 2019.

When it comes to securing as much money as possible, gold can play an important role. It should also be borne in mind that gold and silver are compared to each other as “flying under the radar” and cannot be subject to subsequent taxation. Those who own coins or bars can do so without digital or any other kind of access.

Apropos taxation: Silver is subject to the full VAT rate, whereas the purchase of gold is tax-free. However, silver has the disadvantage that one kilogram “only” earns around 608 euros. You have to stockpile as much silver as you want in order to store part of your assets in this form.

It is difficult to make forecasts about the demand for precious metals. It is true, however, that gold and silver are used in numerous industries and that this is the only aspect of security. Furthermore, the past teaches us that the great hour of precious metals strikes especially in times of crisis and when confidence in paper money is lost.

Currencies are also mentioned in the comparison of financial investments, but are only recommended as real crisis protection against the decline of one’s own currency. In view of horrendous front-end loadings, investing in Swiss francs, US dollars or yen hardly earns any money and certainly not in a safe way. Even the British pound was not suitable as a clever investment or speculative object before the horizon of the Brexit.

Comparison of financial investments: Real estate

When it comes to security, real estate is always listed among the financial investments in comparison.

In fact, a self-used property is a clever approach and increases the possibilities of investment, since no more rent must be paid. Accordingly experts also always recommend that before each of the investments the repayment of debts should stand in the comparison.

Who has still loans running, should not think of other financial investments, but only once pay off, since the interest turn out there usually higher than the money, which can be earned elsewhere surely. Besides the risk of a Nicht-Bedien-Könnens of repayment and interest should never be entered, because with the own four walls also a good piece of the existence is lost.

But how does it look with rented real estates or real estate funds under the question of the financial investments in the comparison?

Only ten years ago, the reference to an extremely favourable price level and the associated opportunities would have been made above all in the capital Berlin. In the meantime, however, a real estate hype has developed which has caused prices to rise enormously. In some residential areas, the purchase prices for real estate have more than doubled, so that bargains are hardly possible anymore.

In addition it comes that the rents do not grow to the same extent and on the part of the policy since eh and ever a tenant-friendly policy is made. In other words, when buying real estate there are imponderable risks associated with rent caps and, of course, the many aspects that have to be considered as landlords. To name are possible arguments with the tenant, payment arrears or even – failures, renovations and also the communication with the owner community does not function always smoothly.

Nevertheless, real estate is considered a relatively exciting topic among “financial investments by comparison”, especially as not only metropolises but also smaller cities are coming into focus. However, it is advisable to be a little familiar with the surrounding area and possibly obtain information about planned construction projects before buying a property. It should also be borne in mind that a property purchase always involves ancillary costs of around ten to 15 percent and that interest must also be paid.

Comparison of investments: equities, equity funds and ETFs

The question of whether equities, equity funds and ETFs should be counted as safe or unsafe investments in comparison could be answered controversially.

What is certain is that the global equity markets have only known one direction in recent decades: upwards. Of course, there have always been price corrections and slumps, but those who had the proverbial staying power ended up on the winning side. We are talking about stock indices, because individual stocks can naturally develop differently.

For this reason, newcomers should not invest directly in a company’s shares, but rather spread the risk. This is possible by buying equity funds or ETFs. The latter abbreviation stands for exchange-traded funds, which often consist of hundreds of individual stocks and thus represent the entire stock market. ETFs can also be bought on well-known indices such as the DAX or Dow Jones, alternatively there is the possibility of investing in sectors.

Even though the past clearly speaks in favour of owning shares and these perform particularly well in comparison to financial investments, there are risks. Nobody can predict that the stock market will continue to perform so well in the future. Those who need money quickly may be forced to sell at a loss. In general, the possession of shares is to be regarded more as a long-term investment and hectic and hasty behavior is quickly punished.

Comparison of financial investments: alternative financial investments and crowd investing

Of course, we could still talk about bonds, warrants and derivatives at this point, because the world of financial investments is large by comparison. At some point, however, one enters a terrain that is rather reserved for professional investors and harbours enormous risks. Nonetheless, the wealth of financial investments is still greater than the classics would suggest. Digitalisation and the Internet in particular have created new opportunities that may well be worthwhile.

There are, for example, crypto currencies. Bitcoin and Co. have recently started a veritable triumphal march and are already proving to be a legitimate means of payment in some places. We are talking about virtual currencies that are protected by block-chain technology. Some of the price increases were in the three- to four-digit percentage range and many an early investor can now call himself a “Bitcoin millionaire”.

That sounds tempting, but there are also dangers lurking behind the crypto currencies. For example, the media repeatedly report on hacker attacks, some of which are successful. In addition, the volatility (i.e. the price fluctuation) of crypto currencies is enormous. Overnight a price can halve as well as double and investors really need strong nerves to take part in rallies. Crypto currencies may be suitable as an admixture if you have a technical affinity yourself, but they certainly do not represent a basis.

More exciting and above all more real are the possibilities offered by crowdfunding or crowd investing. Among the financial investments in comparison, one could speak here of a participation in a company or an investment in a promising project. In crowd investing, companies present a project and solicit funds from different investors. The investment can be made easily via the Internet and platforms created specifically for this purpose, and the interest rates and times at which the money flows back are fixed in advance.

In formal legal terms, this is the granting of a subordinated loan. Examples of crowd investing often come from the real estate or energy sector, but ship investments are also possible. Those who invest their money here take an active part in world trade and participate in the enormous potential of the international shipping industry. This sector has been in enormous motion for several years now and promises returns that can reach double figures.

Of course, it is also important at this point to point out the risks that go hand in hand with investing in entrepreneurial success and are comparable to those on the stock market. Crowdfunding and crowdinvesting have long since proved to be an established way of adding money to investments and have gained in importance.

Finally, tangible assets should also be included in the list of financial investments by comparison. Statistics prove that those who bought vintage cars or certain wines, optionally whiskeys or luxury watches ten years ago, could count on the best returns. That sounds tempting at first glance, especially since luxury goods or material assets can also be used and enjoyed by oneself. Of course, art that has also increased in value is comparable to this.

The big catch, however, is that it is never possible to predict which car, which watch and which work of art will gain in value and which will not. For example, if you buy ten different wristwatches, you can almost certainly assume that a maximum of one will still have the same value after ten years as when you bought it. Increases are possible in theory, but in practice they only affect a few objects, which are then reported on all the more extensively. Anyone who is already familiar with a subject should take advantage of opportunities – for those unfamiliar with the subject and newcomers, disappointments and losses are more likely to lurk here.