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by Julia Gross, Euro on Sunday
Whoever wants to climb a mountain for the first time does not start with Mount Everest. If you can not swim, you use aids such as swimming boards to keep you afloat. It's very similar with the investment: you also have to learn to invest.
Germans are great saversbut they often give the best opportunities. Because they do not dare because they are under-informed, because it's a boring subject. But with declining pensions and persistently low interest rates, it is more important than ever to save money wisely and invest capital profitably. That is why € uro introduces the basic principles of an investment on Sunday in this week and the following.
At the beginning is the questionwhy should money be saved or invested at all? This sounds innocuous, but that does not define its target can easily end up in the implementation. The goal is usually followed by the target amount and the investment horizon, which can in turn be used to obtain an appropriate investment form.
First step: set the goal
Concretely, those who save on a new washing machine will not usually invest in the stock market. Similarly with the new car, where there are many alternative financing quite reasonable to the clbadic investment.
The situation is different when it comes to saving for the children's education or for their own retirement. Here, investors usually have enough time to let the money work for them. In particular, in the case of old-age provision, there is also a specific starting point that helps to define the goal: the annual notification of the German pension insurance to all insured persons aged 30 and over. at least 28 years old and contributor for five years.
"The main problem of retirement planning isThat most people do not know what expenses they will actually incur as retirees, "said Rolf Tilmes, chief executive officer of the Financial Planning Standards Board, Germany, to begin – not to mention the risk of potential care costs.
Start early is worth it
According to an badysis by the Ruhr-Universität Bochum, pensioners are satisfied with their financial situation if pension provision represents more than 87% of net income before retirement. The messages from the stand should make it clear that the legal pension is not enough. According to the Institute of Retirement and Financial Planning (IVFP), the standard of living gap between workers will be at least 40%. For freelancers and freelancers, it will probably be more.
With these basic figures, the need can be fairly determined – the result is a six-digit figure, which seems inaccessible to some people. At this point, it must be understood that such sums of money can be difficult to accumulate simply by "putting money aside". This only works if the accumulated capital generates interest. And it becomes obvious that the immense importance belongs to the period available for financial investment. If you start earlier, you will get an unbadailable advantage fairly quickly.
The reason is the compound interestwould have been once qualified by Albert Einstein as "the most powerful force in the universe" and "eighth wonder of the world". If interest received is added to existing capital and subsequently compounded, there will ideally be an exponential growth of credit. On the graph above, this is easy to see: the 35-year-old saver comes out of interest after a regular deposit over 30 years to just over 35,000 euros (blue line). However, if he receives on average an interest of six per cent, his badets increase, taking into account the effect of compound interest for the same period, reaching nearly 100,000 euros.
Arguments speak for actions
This effect is all the more visible as you save a long time. As the chart shows, the 45-year-old has no chance of catching up with his investor, who is investing a total of ten years more, despite the amount of his savings multiplied by half with a rate of interest. constant six percent. After all, earn interest and compound interest almost twice as much capital as pure savings.
These are certainly idealized calculations. But the two basic badumptions are still correct: no interest and no compound interest, no big leap is possible. And the sooner you start investing, the better.
But where do you find an enriching interest? It's not surprising that € uro Sunday, as a financial newspaper focused on the stock market, advises investing in equities. Why do you think there is no way around the actions in our opinion? Because they simply get the best return in the long run. In fact, the 6% yield of our chart example is not superficial: it is the average annual return on investment in a broader portfolio of stocks over 20 years.
Limit the risk
A long-term investment horizon is also an excellent risk cushion for equity investments: badume a holding period of 15 years. Over the past 49 years, investors would have always had a positive return if they had invested in the MSCI World Index. It was therefore impossible to make losses with this system if we could be patient for 15 years. Incidentally, the same goes for the DAX. If you hold the securities even longer, the likelihood of getting higher returns changes.
Of course, the past does not guarantee that there will be no loss over a period of more than 15 years. The question is whether this should prevent investment in shares. Which means at the same time being content with low to negative returns. A negative return – or, clearly expressed, a loss – is already suffered by any investor who maintains his capital at minimal interest rates on the money account of the call. With an inflation rate of about 2% currently, the badet decreases instead of growing.
There is no risk free return. Investors in this situation, however, can structure their custody to sleep properly and realize decent capital gains. How to adapt your investments to your personal risk profile and whether they are individual stocks, stock funds or ETFs, you will learn more in the next episodes of our series.
The benefits of a long investment horizon However, they only intervene if the capital invested is not affected. This leads to the definition of the purpose of own investment and duration until the last consideration in principle, which should precede each investment: how much money should be used?
Anyone who thinks of the staggering numbers of the pension gap should spontaneously respond "as much as possible". But it is not a good idea. Because if major repairs, other unforeseen expenses or even a job loss leading to the filing must be initiated, all the considerations and calculations for the cat. A forced sale involves not only the risk that it will occur at an adverse time in the normal course of business, so you could receive even less than what you paid. It also means a decline that may not be recoverable and the initial investment objective can no longer be achieved.
Use only disposable income
For this to happen only in the most extreme emergency situations, investors must check their disposable income. This is calculated by deducting expenses from revenues. The cost of living such as rent, mortgage rate, insurance, food and other purchases must be taken into account, as are vacations, communication and mobility. And: the repayment of debt has priority over investment.
It is also important to recalculate disposable income to account for changes in the family situation, such as the birth of children, a change of housing or employment. A liquidity reserve for unforeseen events is also important. Typically, two to three net monthly salaries are expected, which are usually parked on a telephone call account. But depending on the level and the life situation, it can be more.
Even small amounts
Especially at the beginning of your career, the remaining amount can be reduced. However, this is not a reason to let the investment time, on the contrary. As the chart on page 43 shows, investors lose money every year, they invest later. The ETF's austerity plans are already starting with contributions of ten euros a month, deposits can still be adjusted upward.
Regular savings can even be beneficial Due to fluctuations in the stock market: you sometimes buy at higher prices, sometimes at lower prices, which in the long run lowers the average price and mitigates the risk of price fluctuations.
In the next issue:
What kind of charger are you? A person's level of risk depends not only on their investment objective and time horizon, but also on their very personal attitude. Anyone who understands that he will join us
Real losses are often wrong. In the second episode
our investment series, you can use a test to test your risk
evaluate the affinity better. Also: tips on how to risk
Limit your deposit and avoid common mistakes.
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Image Sources: Sebastian Duda / Shutterstock.com, MichaelJayBerlin / Shutterstock.com, TijanaM / Shutterstock.com, Marian Weyo / Shutterstock.com
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