Security through smart investment
The bad news is that all current investments that do not fluctuate generally currently bring less than the inflation rate and thus ultimately result in a (purchasing power) loss. So there is only the option to switch at least part of the total to higher-yielding stock market investments. However, this has the disadvantage that these investments fluctuate in value on each trading day and can also bring you considerable losses. Many investors still know this from their own bitter experience.
In the period between 1999 and 2002, the otherwise so vulnerable Germans finally ventured out of cover. They went public and bought shares. It attracted Deutsche Telekom, Infineon and countless smaller Internet and IT companies with seemingly immeasurable price gains. You know the end of the song all too well: the speculative bubble burst and the former stock market winners lost 70, 80 or even 90 percent in value if they did not even disappear completely from the scene. After these severe losses, the majority of the population then had enough of stock market investments. They preferred to be satisfied with micker interest rates than to experience such a debacle again.
The only right measure: yield minus inflation rate
It would be wrong to just look at the interest rates when investing money. You always have to consider this rate of return together with the ongoing and mostly unnoticed loss of purchasing power of the money invested. A financial investment is only profitable if the return achieved (i.e. the interest rate generated by a financial investment) remains positive after deducting the current inflation rate.
Assume that you receive 1,0 percent per year for overnight money from your bank. Then the sad message is: If the inflation rate is only 2,0 percent, and from the perspective of the monetary authorities, that is even the optimal state, then you are making losses on the bottom line. With an inflation rate of 3 percent, which we have seen enough times in "solid" Germany, the negative wealth effect becomes even greater. Relative to a year or two, these losses are undoubtedly acceptable because they are negligible. But woe, you do this for 10, 20 or even 30 years. Then you will find that there is not much left of your original money, although the bottom line is that there is a higher amount on the account statement than initially.
How Inflation Affects
How does the purchasing power of 2 euros develop with a real return of minus 1 percent (3 percent credit interest minus 5000 percent inflation)? Look for yourself:
After one year, the purchasing power is only as much as 4900,00 euros today.
Saving definitely results in losses
In fact, the sometimes strong fluctuations on the stock exchanges - especially for security-oriented investors - do not exactly sound like a desirable alternative. But if you know that the alternative to the stock exchange, namely saving with insurance and bank deposits, will definitely result in losses, but the stock markets will not, you have to come to the conclusion that a profitable investment without stock market investments is practically no longer possible these days.
The good news is that it is up to you to reduce the fluctuations - and thus the losses - or even make a profit from them. The following three principles play a key role here: diversification, entry point and investment horizon. Here are some explanations.
On the way to a responsible investor
If you now look at your start-up capital, you will probably ask yourself two central questions: What return (with what percentage profit per year) can I expect? And how safe is an investment in stocks?
Our goal is for you to become familiar with the most important strategies and instruments for investing and to become a responsible investor. To do this, you should know the most important investment instruments with their strengths and weaknesses and also know which strategies can increase your stock market success (dividend strategy, value strategy).
Investment no way leads past stocks
It is not about investing every free euro in shares. However, if you have saved 10000 euros for your personal investment and not only want to preserve the capital, but are looking for a noticeable increase in wealth, we believe that there is no way around stocks and equity funds. To make it clear once again: when it comes to investing your 10000 euros in a profitable and liquid way, shares are an indispensable asset!
This statement also applies not only in the current low interest rate phase, even though savers are currently suffering, but in every market phase. Shares (i.e. investments in listed companies Companies) are the silver bullet when it comes to investing small to medium-sized amounts of money with high returns. If you have a large fortune, like the stock market legend Warren Buffett that we often cite, you can also buy entire companies and thus acquire substantial returns.
But there is another very important point to note: You should know why you will even be happy about price fluctuations on the stock exchanges in future thanks to the average cost effect! An important finding is that price fluctuations, including downward movements, are not an evil, but the friend of the farsighted investor. So don't be afraid to enter the world of stocks and funds!
Invest wisely: 3 basic principles, without which it is impossible
You already know the bad news if you look at the sparse investment success of your bank accounts, capital life and pension insurance: All current investments that do not fluctuate and offer a high level of security currently generally bring less than the inflation rate and are therefore the bottom line for a (purchasing power) loss. So there is only the option to switch at least part of the total to higher-yielding stock market investments. However, these are subject to fluctuations and can bring you losses.
In fact, the sometimes strong fluctuations on the stock exchanges do not sound like a desirable alternative, especially for security-oriented investors. But anyone who knows that the alternative to the stock exchange, namely saving with insurance companies and banks, will definitely result in a loss of purchasing power, but the stock markets will not, however, must come to the conclusion that a profitable investment without stock market investments is practically no longer an option possible.
Overview of 3 principles of action
The good news is that it is up to you to reduce the fluctuations - and with it the losses - or even profit from them. The following three principles play a key role here: diversification, time of entry and investment horizon. Here are some explanations.
1. Diversification: Don't put all your eggs in one basket!
It would be unwise to put your money in just one of the many types of investments that are available. In a bank account alone, it doesn't earn enough interest. On the other hand, if you buy a single share of your money, you can never know whether you were going to win or lose. Therefore, you should split your money:
- Whatever you may need again soon, you'd better put it in fluctuating investments. A call money account is not the worst here - even if it does not bring you the inflation compensation that you actually intended.
- On the other hand, you invest money that you can do without for a longer period of time. Ideally, you should allow yourself at least five to ten years. However, instead of betting on just one share, open-ended investment funds, for example, are the better choice. In other words, exchange-traded securities that distribute the invested money among various stocks, bonds and other assets, so that the risk of fluctuations is also distributed and the risk of loss is reduced.
2. Starting point: Don't buy everything at once!
Most stock marketers rely on the right entry point: "Buy at the lowest prices and sell at the highest prices, then you are always guaranteed profits!" That is the frequently quoted recommendation, and there are a host of stock exchange analysts who choose the right entry and exit times true science without, however, always being correct in its prognosis. Forget this recommendation! Because it can hardly be implemented sensibly.
The best time to get in and out is usually only afterwards - and then it is of course too late. After all, it is much wiser to secure at least, on average, reasonably cheap entry prices and also to invest in securities with ongoing, relatively stable growth in value. The means of choice is called the “savings plan” and is a clever and simple method for both investment funds and shares to convincingly solve the problem with the optimal timing. You can find out more in Chapter 9.
3. Investment horizon: just sit out short-term losses!
The following saying comes from stock exchange guru André Kostolany: »Buy stocks, take sleeping pills and stop looking at the papers. After many years you will see: you are rich. ”Not that Kostolany himself was too meticulous about his own advice - he was more of a speculator and was not so comfortable with long-term investments. Rumor has it that he lived less on the returns from his stock market investments than on what his celebrity status as a journalist and writer earned him.
However, his saying contains a true essence: stock market investments are particularly successful if you, as an investor, have enough time and patience. Because share prices may fluctuate so much in the short term - they will rise in the longer term. So the longer you hold your securities, the less likely losses are and the more likely you are to make a nice plus on the bottom line.
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German edition: ISBN 9783965965362
English version: ISBN 9783965965379 (Translation notice)
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