If you take care of your finances, you can save expensive commissions, fees, and transaction costs and choose the best investment between opportunities and risks. We give the most important tips for the start.
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Best Way To Invest Your Savings
The Essentials in Brief:
- Do you want to invest money but need to know how? We give tips and explain the various options.
- If you take the management of your finances into your own hands, you can save a lot of unnecessary costs.
- Which mixture of safe and volatile investment forms makes sense depends on your risk tolerance.
Table of Contents
- The secure component of your financial investment: overnight and fixed-term deposits.
- The income component of your investment.
- If stocks, then stock ETFs (index funds).
- ETFs are so much cheaper compared to other products.
- Individual stocks and fund policies are not good alternatives.
- How much risk can it be?
- How to invest your savings.
- How to find a suitable ETF.
- Invest everything at once or set up an ETF savings plan?
- Personal advice for you.
The secure component of your financial investment: overnight and fixed-term deposits
You can get overnight money from your bank at any time without notice. It will be almost zero if you still get any interest in it. Because of inflation, this means that your money in money market accounts will lose value over time. Compared to the savings book, overnight cash has the advantage that you can also withdraw more than 2000 euros per month. Otherwise, a notice period of three months applies to savings accounts for larger amounts. And at most banks, savings books now hardly bring any interest.
In the case of a fixed-term deposit, you can agree on a term of between six months and five years or more with the bank, depending on your wishes. Longer maturities usually mean higher annual interest rates. Before the end of the agreed term, you will usually not be able to access your savings. You can also invest part of the savings as a one-year deposit and function as a five-year deposit if you want some money available faster.
If you place the highest possible value on security, even in the event of a bank or state bankruptcy, then invest in call money and time deposits with providers who are subject to statutory German deposit insurance (an overview of participating banks can be found here ). 100,000 euros per person are secured per bank account, as far as deposits are concerned (overnight and fixed-term deposits, savings books, savings certificates, current charges).
Stiftung Warentest also recommends deposits with foreign deposit insurance for selected countries it believes are exceptionally safe. More information on deposit insurance can be found here.
Current fixed-term deposit conditions can be found at Finanztest, the financial magazine at Stiftung Warentest. Many test results and comparisons there cost a small amount. In contrast to comparison portals, Stiftung Warentest has no interest in mediation and works independently.
The Income Component of Your Investment
Do you have amounts of money that you will most likely not need within the next ten to twenty years? Then you can consider investing part of it in high-yield but volatile investments.
Studies have shown that over 20 years, equities have been the most profitable investment in 73 percent of all periods since 1900 and in 93 percent over 30 years - often far ahead of all other asset classes such as real estate, gold, government bonds (or capital-forming insurance) or savings account.
The critical point here is: You have to be able to sit out crashes and crises in between. Losses over 20-year periods are unlikely for globally diversified stocks, as our return calculator shows.
How to Invest Your Savings
If you are interested in ETFs, you need securities to account with a bank and choose one or more ETFs. You can imagine the securities account as a drawer in which your fund shares are stored (today, of course, in digital form).
Securities accounts are usually available at direct banks free of charge. However, there are (primarily manageable) costs when buying ETFs, which vary depending on the bank. You can find an overview of the conditions at Stiftung Warentest. Forms for opening a custody account can be found on the websites of the direct banks.
How to find a suitable ETF
You can always find up-to-date lists of suitable ETFs at Stiftung Warentest. You will also receive this in our personal consultations.
The selection is not rocket science. Proceed as follows:
1. Choosing an index that the ETF should track: You are probably familiar with the Dax. This is not very suitable as an index for an ETF because it only contains German companies and is, therefore, much riskier than an index that includes companies from all over the world. Standard indices with a broad spread are "MSCI All Country World (ACWI)" and the "FTSE All World". Both contain more than 3000 public companies worldwide from developed and developing countries. That's enough.
You can also combine other ETFs, but that's not necessarily much better. Why make it complicated when it can be easy? Then find an ETF that includes the index name and ensure it tracks the said index. A look at the product information (critical investor information or "KIID") is sufficient.
2. If your bank offers several suitable ETFs: Do you want to have the dividend income, which is around 2 percent a year, paid out, or should it be reinvested straight away?
3. If the ETF uses the earnings to buy new shares, it is called an accumulating ETF. In this way, you benefit more from the compound interest effect. If the dividend is paid into your checking account, it is called a distributing ETF. Then you get paid some money yearly, and you can do whatever you want.
4. Also, take a look at the fund size. In the case of small funds with a fund volume of fewer than 100 million euros, there is a risk that they will be closed, meaning that you will have to sell the fund unplanned and replace it with a new one, which would cause unnecessary costs. In addition, the annual fees are higher for minimal funds.
The running costs for stock ETFs are usually between 0.1 percent and 0.5 percent. Check the height by looking at the product information.
It doesn't matter which ETF you buy from because you need to predict business policy. Many have reduced running costs in recent years due to increased competition. If the providers change something about the product, such as the cost amount, they must inform their customers in good time. Therefore, after the purchase, always read the provider's communications carefully, which your custodian bank will send you.
Invest everything at once or set up an ETF savings plan?
You can buy ETFs once. There is no formal minimum investment amount. Depending on the bank through which you buy the ETFs, it makes sense to only invest from 1000 euros because of the purchase costs. If you have money left over sometime later and want to buy more, you can make a one-time investment again.
With a one-time purchase, you must also determine which exchange you want to use to buy the ETF. Direct trading as an alternative to exchange trading is the easiest for beginners but may be slightly more expensive. Before issuing the order, your bank must inform you of the costs incurred using a standardized procedure.
ETF savings plans are usually available for 25 or 50 euros per month, but you can also specify that you should only buy every two months or quarterly. ETF savings plans are usually very inexpensive and flexible compared to many other pension plans: You can change the savings rate at any time or end the savings plan and continue later. To buy an ETF, you need the securities identification number (WKN) or the index fund's International Securities Identification Number (ISIN), which you can find in the ETF tables, for example, at Stiftung Warentest.
Whether you choose a one-time investment or a savings plan naturally depends on whether you want to invest a more significant amount or whether you want to build up assets monthly, for example, with your salary. The acquisition costs are slightly higher with the savings plan, but you don't have to constantly worry about new systems.
Should you wait with the investment when prices are high and hope for lower prices? We cannot recommend this because the course development cannot be predicted.
Conclusion
Anyone who fears losing the overview between the many technical terms and the different investment forms should keep going. A lot sounds a bit complicated when you first read it, but it is massively worthwhile in the long run to take wealth accumulation into your own hands, not least because of the cost savings. If you need support, our consultants will be happy to help you.