Putting money aside to prevent old-age poverty, or would you rather save for the dream of your own dormitory? Why not both? When it comes to investing in pensions, German savers are often faced with the agony of choice: savings book, daily money, deposit or perhaps tangible assets such as a property? Depending on personal preferences, different types of investment are possible. One thing, however, is the same for everyone: the earlier you start, the better. Even small amounts from a trainee’s salary can be positive after a relatively short period of 4-5 years. For example, deposits in a building-saving contract. With the individually chosen investment, you can build up capital effectively and without financial restrictions.
Right at the beginning: The terms investment and financial investment often lead to confusion. However, they relate to seriously different financial sectors. The financial asset is all monetary and non-physical assets in an enterprise’s fixed assets, which are permanently used for business purposes. Thus, a financial investment is only relevant from an entrepreneurial point of view. The investment, on the other hand, describes the general use of capital for a specific purpose by an investor. For this reason, investment is often referred to in general terms as an investment and thus also includes private investors.
The among the most well-known investments in the retail sector are:
Daily money is arguably the simplest and often the safest form of investment by private clients. The reason for this is that as a customer you can use your capital on a daily basis. Therefore, the term daily allowance can also be derived. In addition, daily deposits must be hedged by the Deposit Guarantee Fund for banks up to an amount of at least EUR 100,000 per customer. Even in the event of the insolvency of the credit institution, the client funds are still available and available. However, due to this security and easy accessibility, daily money is rightly low interest paid by banks. Depending on the current market situation, customers may even have to pay negative interest rates, depending on the amount of the investment.
In principle, the traditional fixed-price payment differs from the daily allowance in only two small points. The term, which is usually 12 to 36 months for fixed-term deposits, and the slightly higher interest rate. However, there is currently an absolute low interest rate of well below 1. The capital is not available during the term, so only funds that are not needed during the term should be considered for this purpose.
Equities are arguably the riskiest, but perhaps also the most rewarding form of investment for private investors. Higher risk of capital loss, on the other hand, offers opportunities for higher profits, depending on market developments. As an investor, you have the choice of which companies you trust and where your own capital goes. After the banking crisis of 2008 and 2009, equities are now enjoying a greater popularity among private investors due to the low interest rate phase. Investments in shares are carried out via a deposit at a credit institution. After the customer has purchased a deposit, shares can be purchased directly online and through the bank and managed in the stock deposit.
In addition to shares, funds can also be held in a custody. The principle is the same: the customer makes the decision in which values he wants to invest. Due to the variations of funds and their components, clients have a wide range of high-risk and low-risk fund types. In this case, however, the creators and managers are not companies, but so-called fund companies. In this way, the funds of many different investors are invested by the company in assets such as real estate, shares, or even bonds. By dividing the sum of all investments into several properties, this results in a dispersion of the value fluctuation risk. For this reason, funds typically have a longer investment period than equity investments in individual companies. On the other hand, however, they offer an easier entry point due to their increased security of the general public.
High single-digit percentage returns are not uncommon when investing in funds.
Gold has become increasingly popular and important among investors in recent decades. The reason for this is the ever-continuing and relatively stable rise in the price of gold. However, due to its all-time high, the investment in gold also carries the risk of a sudden price crash. Nevertheless, the purchase of gold can be worthwhile, as its value has been going on for millennia and will continue to be retained due to its status as a rare precious metal.
Real estate is particularly interesting for the retirement provision mentioned at the beginning. Investors who want to invest permanently find the perfect opportunity to invest their own capital in real estate for their own use and/or rental. A home-owned property protects against unexpected rent increases and is therefore particularly worthwhile as a low-income pensioner. A rented property, on the other hand, increases its own liquidity and should achieve a return of 5-6 with proper management. Especially in the period of low interest rates, an additional investment, gladly also with the help of construction financing, can be worthwhile. In the case of loan interest of 1-2, rented properties can usually cover the repayments of financing through rental income. As a result, the owner will benefit from a paid-off property in old age, which will henceforth generate a return on investment.
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With a property, you invest in a property value and are thus independent of the inflation level. This benefits the investor especially in the present day, i.e. with steadily rising inflation. The value of the property is therefore subject to lower fluctuations in value than, for example, capital in the form of a share portfolio. If you prevent a sharp decline in the value of the property with regular modernization and renovation, you also benefit from yields in the high single-digit percentage range when renting. If you have decided to finance a property when buying the property, the rental income will be used to pay the repayments of the loan. During the entire term, it is still possible to deduct the interest to be paid from the tax.
Rented properties also help to upgrade their own pension, as they are usually paid off at retirement and continuously generate more or less net income. Since property owners are obliged to maintain their property, renovations and modernizations are due here and there. But even these have positive effects. In this context, costs incurred in this context in the form of advertising and maintenance costs, depreciation, or interest on loans can be deducted from personal tax. In addition to all these advantages, the property also provides good security for financing further investments. For example, further real estate financing can be secured with an entry in the land register and provide a good basis for interest rate negotiations.
If you as an investor place value in the flexibility of an investment, you are certainly wrongly served with a property. Due to the investment in a tangible value, withdrawals at any time, as with a daily money account, are not an available option. In addition, emergency sales are often associated with high losses for financial reasons. So if you decide to finance or acquire a property, you should be aware of the associated term right from the start. In addition, rental yields are a reliable source of income only for permanently rented properties. Renting away from good infrastructure and less sought-after locations is harder than in the popular metropolitan areas around major cities. Choosing the right property therefore plays an important role. Another negative point is the ever-increasing purchase prices. The more you have to invest when buying a property, the lower the returns. Especially if you also use construction financing for the acquisition of the investment property.
Many investors forget that in addition to the pure purchase price, there are also considerable incidental costs. These include, for example, notary costs, brokerage commissions and real estate transfer tax. The maintenance and maintenance obligations associated with property ownership should also not be underestimated. If you as the owner are not able to manage rented properties correctly, professional service providers ask expensively to pay. Old houses and flats need continuous modernization. It is not uncommon for further financial injections from the Bank to be necessary.
The E1 Investments concept offers a proven system for the solid development of a business as a broker and owner of a real estate business. E1 Real Estate has the infrastructure and operating systems that enable us to offer first-class services with a team of brokers. You are investing in the market of the future.
Even as a layman, it is important to deal with the subject. Leaving your own money in the current account will reduce assets in the short or long term as inflation rises. The following tips should help you find the right investment:
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