Investment: Invest money in real estate and shares – Here you will find everything you need to know to make money with real estate. Definition, comparison and investment tips, we have compiled the most important factors for you. Tip. At the end of the article on capital investments in comparison, you will find even more links such as: “Real estate purchase guide for house & condo” and “New construction projects: Private, Process, Cost”. Good luck with your investment. If you have any questions about capital investment and asset management, please contact our expert.
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Which system suits me? Definition and meaning
Whether inherited, won the lottery or simply earned quite normally: There are increasingly people who have money that they simply have “left over”. If these are even larger amounts, the question arises: What can I do with this capital so that it becomes more without my own doing? On the German and international market there is a real abundance of possibilities for capital investments. But: which of the investments suits me and my wishes? There is no “right” way through the jungle of investments.
Guide through the investment jungle
Call money, savings accounts, crowd-investing or gold bars – if you open the offer pages of banks and other investment brokers, you quickly lose the overview. Often it turns out, even when reading the first sentences, that most advisors only have their own product range in mind. It is therefore a real challenge to find a guide through the investment jungle. You will certainly find the “right” thread for you personally once you have first clarified your own investment goals.
Is there such a thing as the “best investment in the world”?
It is not a sign of ignorance or megalomania to ask for the best investment in the world! However, the answer depends on whom you ask and, above all, what the investor himself wants. The seriously oriented investor should not expect objectivity in the strict sense. Therefore, it is primarily important to consider one’s own goals, which I associate with the capital investment.
Five questions for serious investors
- How much capital do I have available?
- How long can I do without my capital?
- How much time do I have to take care of my investment?
- What risk am I willing to take?
- How much experience do I have with investments?
The answers to these questions ultimately result in your personal investment type. What sounds like “pigeonhole thinking” has been a legally effective basis for serious investment advice in the investment business for several years. Above all by these questions the capital investor is to become itself safe whether the offered product fits to its desires. Thus one is better protected against unpleasant surprises. Because finally it concerns money and thus a substantial part of the own existence. Because by far not every capital investor is a multiple millionaire and can get over the possible losses, which by the way also the allegedly best capital investment of the world brings with itself.
Capital investments without risk are what everyone wants!
According to official estimates, around 150 billion euros are currently lying dormant as cash in German households. The total assets in German households are in the range of several trillion euros. The reasons for this are manifold. Essentially, the fear of losing one’s money if one does not have it – often literally – under one’s pillow is behind this “bunker method”. But perhaps there is also a fair amount of disorientation behind it in view of the many and varied investment options. True to the lyrics of Nina Hagen’s song “I can’t make up my mind, everything is so beautifully colourful here”!
Not only beginners in the investment business dream of THE analge without risk with maximum returns – that is, the profits that your own money earns from the investment form. But it should be pointed out already at this point: A capital investment without risk does not exist! Because even the classic savings book or even the “pillow method” have the uncertainty of the creeping devaluation of money – called inflation – in itself. Simply formulated: If you have €10,000 under your pillow or “in the bank” (meaning savings book) today, you will have less to do with it in ten or more years in terms of the value (or purchasing power) of that amount. In Germany, this has been between 0.3% and 2.6% over the past ten years (Statista link). With the current savings interest rates – for example also on overnight deposits – of 0.2% to 0.5%, the loss in value is smaller, but still present.
Your personal investment type
This already makes it clear: Simply doing nothing with your capital – no matter how large it is – cannot be the solution. At the same time, it can and should be fun to look into one’s “personal investment type”. Also apart from discussions with investment consultants money investors can carry out a first estimate of their investment type. This does not mean that a decision is made on the type and content of the future investment.
Basically, one can say: the higher one’s own willingness to take risks and the ability to deal intensively with one’s investment, the greater the chances of returns. But beware: where there is a lot of light, there is also a lot of shadow! Because a chance of return is also a risk of return, i.e. loss! How good it is that there are often even several offers for each type of investment – meaning the human being.
Those who still remember World Savings Day will also remember that even the small pennies paid in at the time – now penny pieces – even earned interest in total. The saver got between 4% and 5% interest in the 70s and 80s of the 20th century. With it it went and goes for many years downhill. Today the savings book brings only 0.02% interest. Partly even penalty fees are due for savings income. (Click statista interest development in Germany). Nevertheless, the classics among the savings forms of the Germans are not dead to get. Therefore, here is a brief overview.
Savings book, time deposit, funds & Co
- Savings book: 100% security; no charges, drawing limit usually limited; very low interest; notice required; very low return
- Call money: 100% security; no fees, unlimited withdrawal limit; low interest rate (slightly better than savings account); can be cancelled at any time without notice; very low yields
- Fixed-term deposit: 100% secure; no fees; no availability during the agreed term; therefore higher interest rate than with savings account or overnight deposit; interest rate fixed during the entire term; contract expires automatically; very low return
- Savings bond: see time deposit
- Lump-sum payment plan: Special form of (pension) insurance; the “saver” receives monthly payments from the single amount paid in; minimum interest rate guaranteed (but currently very low); if “capital consumption” is agreed, payments are made until the capital (including interest) is used up, thus enabling higher payouts; without “capital consumption”, the monthly payouts are lower, but payments are made for life; low return; very low risk; very low return
- Funds: The best way to think of a fund is as a “pot” into which many savers put money. The pot is managed by fund managers who invest the money they collect in stocks, bonds, real estate and other securities. There are different types of funds: equity funds invest most of their capital in shares, while bond funds buy fixed-income securities. Mixed funds, for example, consist of equities and fixed-income securities.
- Risk depending on fund type lower (e.g. bond fund) or higher (pure equity fund); fees for fund management (custody account costs) and for each deposit (issue surcharge); in some cases further fees; fund deposit (paid-in capital) can usually be terminated at any time; fund units are subject to price fluctuations, so that losses can occur – especially if the investment period in the fund is too short; yield opportunities depending on fund type quite high; no own management effort necessary.
At the latest with the issue of the so-called “T-share” of Deutsche Telekom, savers and capital investors alike have realised that buying shares in companies can be worthwhile. And at the latest since the last financial crisis in 2008, many investors have been putting their money into precious metals – preferably gold. What are the arguments in favour? What speaks against it?
Whereas in earlier times shares were regarded merely as a speculative asset investment, today they are seen as an alternative capital investment. Especially in times of low interest rates, shares are becoming increasingly popular. Investors can earn money by investing in shares in two different ways. On the one hand, investors participate in the company’s profits by the company paying a dividend, and on the other hand, investors can profit from increases in value by trading in shares. However, the latter reason also carries risks, as it is not uncommon for stocks to lose value, which can also lead to a lower selling price. Total losses of capital are also possible!
That is why an investment in shares means a sometimes considerable amount of work for the investor himself. He must always keep an eye on the price development of his investment in order to be able to react quickly in the event of a “crash”. It is even better to act before imminent price declines and to shift his assets into other shares. This already requires a lot of knowledge about capital markets and the inner connections between companies and their markets. In addition, there are also fees for the stock portfolio and much more. But as I said: there are numerous investors who have increased their wealth very significantly via shares.
Gold and other precious metals
An investment in gold or other precious metals can be made in various ways. The most common is the “physical investment” – that is, the purchase of the precious metal itself, for example in the form of bars or coins. So-called “exchange-traded gold products” ultimately involve securities that are based on the price of gold. And finally, you can also choose investments in gold mines as a capital investment.
Whoever invests his money in gold basically bears the risk of the development of the gold price. Unlike a share, gold/precious metal does not develop its value on its own like a company. The price of the precious metal depends exclusively on supply and demand. In addition, there is a currency risk with gold investments, since the price of gold is quoted in dollars and the exchange rate ratio between the euro and the dollar must be taken into account when buying and selling. From a pure yield point of view, precious metals are rather unsuitable as a capital investment in the opinion of many experts. In the long run, the price fluctuations of gold are even much higher than those of stocks. As an investment, gold is particularly suitable for investors who are afraid of a currency crash, i.e. who are afraid of the massive and rapid loss in value of their own money. In this respect, it also makes sense to speak of “concrete gold” when talking about real estate as an investment. However, the returns on proper real estate investments are higher than on gold and at least as safe.
The exotics: Green investments, hedge funds and rare earths
If all this is too conventional for you, you will find numerous possibilities on the investment market, which the classic German saver would call “Expoten”. Investments in alternative forms of energy are another variant that can be understood with a little financial understanding. But what to think of highly speculative funds or investments in food? Even raw materials such as rare earths are offered as capital investments and also used.
Available both as direct company investments (shares) or in fund form; energy producers, food producers, etc. are on offer; in fund management, decisions are often also made according to ethical criteria (no armaments industry or suppliers, sustainable agricultural projects, forestry, etc.); return opportunities and risks as well as costs comparable with classic investments and funds.
Form of investment for large amounts (usually six-digit amounts or more); closed fund (the money is not available for a longer period of time); hedge funds usually speculate on the negative development of market values; high-risk form of investment for investors with large assets; partly also institutional investors (banks, insurance companies)
In real existing wine cellars (mostly in the capitals of wine-growing regions) wines of particularly well-known and good locations of selected winegrowers are stored; investors either buy the wines themselves and store them in the vaults of the winebank; the yield is realized by sale; meanwhile there are also fund participations in wines; Fund manager is an employee of the winebank; funds are intended for wine investors who do not necessarily want to deal with the “right” wines themselves; yields are definitely in the double-digit range; however, the investment risk is very high, as wine as a foodstuff is subject to fluctuations in quality and its value is also extremely dependent on demand
Investments are made in raw materials (earths or metals) for the industrial production of mostly electronic products; less interesting for small investments of a few 10,000 €; long capital commitment period; highly risky due to sometimes severe fluctuations in value; artificially produced substitutes can make these natural raw materials superfluous; then there is a risk of total loss of capital.
Conclusion: Capital investment – What makes sense?
The more unusual the form of investment, the better the investor should know the market. Especially if one is dependent on one’s money, for example, for retirement provision. It may sound a bit “stuffy” to friends if you don’t invest in wine or indium (raw material for the production of flat screens). But in return, one enjoys a great deal of stability and security with conventional investments (now certainly also with green investments). If you invest your money in real estate, you can even take a real look at your investment and show it to other people.
Real estate as an investment is becoming increasingly popular
The term “concrete gold” for a property as an investment has already been mentioned above. In fact, the comparison of the purchase of an apartment or a house for investment purposes with the popular precious metal is not far-fetched. Property as an investment is also about security and good returns in equal measure. Real estate certainly does not grow into the proverbial yield heaven, but there’s a great deal of security in the performance and also even two sources from which the return on his invested capital is fed.
Lump-sum payment plan
The latter always works if the investor does not live in the purchased property himself. Because then, in addition to the increase in value of the property, there is also the monthly rental income. As with a capital payment plan, buyers of rental apartments or houses receive money from the capital investment in this way month after month. The return from the increase in value as such can only be realized when the property is sold.
Net annual cold rent
As with all financial investments, there are a number of things to consider in the real estate business. First of all, it is important to pay an appropriate purchase price with regard to the expected rental income. 20 times the net annual cold rent is a good guideline when buying. In fact, due to the current low interest rate level, there are also offers in attractive regions of Germany where the purchase price is 25 to 30 times the net annual cold rent.
This is already the second exclamation mark: in real estate as an investment, the location of the apartment or house plays a central role. Consistently high or even rising rental income can only be achieved in sought-after residential locations and regions. In addition to job offers and leisure opportunities for its tenants, micro-locations to shopping facilities, schools, etc. also play an important role. The best basis for a high rental yield is a very low purchase price with high rental income. However, this is rather rare in the current market situation.
Security of the investment
The type of property also has an important influence on the security of the capital investment property! In view of the increase in single households, for example, it would initially appear attractive to invest in single apartments. For students or senior citizens, for example. However, with this type of housing, a higher turnover of tenants and thus higher interim costs for finding tenants, etc. must be expected. Short-term loss of rent must also be taken into account.
Nevertheless, anyone who invests their capital in a property – apartment building or flat – in a good to very good location need not worry about secure value growth and returns from rents. Realistically, they are 5% and more.
5 forms of real estate investment
The purchase of real estate as a capital investment is quite classic. However, there are also real estate investments that function like funds or shares. In this case, the investor is not the sole owner of a property, which he can also enter himself.
Real Estate Stocks
Capital is invested in real estate companies by buying shares; currently very high yield; but also high entry prices; further performance in the long term very uncertain; high price fluctuation risk; management fees, etc. Here you will find all the current daily prices of the top 20 real estate stocks.
Real Estate Bonds
Here the invested capital is secured by a land register entry in principle; the capital can be returned by sale of the real estate completely or at least in parts; usually the land register entry is not first-ranking, so that also with utilization of the real estate a complete capital loss can occur; only for experienced investors; high net yields possible.
Real Estate Funds
The capital invested in the fund is spread over many real estate investments; risk diversification offers security; this results in management costs; risk of poor real estate values in the fund reduces returns; “closed-end real estate funds” are very risky and only make sense for long-term investors.
For some years now, a very popular form of investment in real estate; “crowd financing” is also possible with very small amounts starting from 10 €;the investor can choose the real estate for his investment himself and is thus his own fund manager; risk of total default is limited with broad diversification; risk due to lack of a say in the development of the investment real estate; the projects offered are often second-rate, as banks did not want to finance them; in the event of insolvency, the crowd investors are served last and usually come away empty-handed
Real estate purchase
Real ownership of a property is considered to be the safest form of capital investment in the real estate sector; stable and secure value development when purchase price and location criteria are taken into account; additional capital requirement not necessary if the property is in good condition; own time requirement for managing the capital investment exists but tends to be low; double return payments from rental yield and disposal yield; profit from sale of the property tax-free from ten years after purchase
Conclusion: The “best investment in the world”?
The “best investment in the world” is therefore the one that best suits you as an investment type. If you are looking for security and return in equal measure and have “staying power”, you should consider buying a property. On the market there is something suitable for every “purse”. As with all investment desires one should alsoten to distribute the risk as broadly as possible. So why not buy and rent a decent apartment first, but then put the remaining capital in another – perhaps short-term or even more speculative – investment? In any case, however, you should seek good advice and know about the opportunities and risks to the best of your ability.