The effects of the financial and economic crisis of 2009 are still noticeable today. Central banks continue to offer low key interest rates and thus, also prevent rising credit interests for investments on fixed-term deposit or current accounts. This policy results in small investors thinking twice about investing. After all, they still want an attractive return on their investment or at least try to compensate for the devaluation of the money due to the continuous inflation.
The majority of investors long for a relatively secure investment, which will result in a certain return on the investment. In this article there will be an overview and a comparison of the popular investment methods. The article will provide information on the current conditions and support the right choice of the personal investment decision.
The fixed deposit, often referred to as time money or time deposit, is a short and medium term investment with credit institutions and a fixed maturity. It is similar to the classical savings account. During the term of the fixed deposit, the investor does not have access to his funds. He will only receive his investment and accumulated interest back at the end of the term. In case of emergency, an investor can always access the capital, since it is generally possible to terminate the contract with a deadline of three months. However, interest payments are often cancelled in the event of termination.
The investment term is generally completed over a period of 12, 24 or 36 months. Unfortunately, interest rates are currently below the 1% mark - as described above. The conditions of the direct banks may be more attractive. Investors currently expect interest rates of up to 1.7%. Since the product is not particularly complicated and regional advice is not absolutely necessary, investors can make use of the offers of direct banks.
Unlike the fixed-term deposit, the overnight deposit is not tied to a certain term. Investors can access their investment daily and do not have to fear any interest rate cuts. In combination with a current account, the overnight deposit account ensures maximum flexibility for the consumer as a financial investment. Just like the fixed-term bank account, the European Union's overnight deposit account is protected by the legal deposit guarantee scheme of the respective country. Accordingly, money investments are relatively secure up to a certain amount. The conditions of overnight deposit accounts are currently slightly worse than those of the fixed-term deposit accounts. Common returns are currently up to 1 percent.
In times of low interest rates, many institutional and private investors rely on shares. They can generate returns in the two following ways: On the one hand, an investor can generate returns based on price gains. The investor will need to sell the share at a higher price than initially bought. The German stock index, the DAX, has recently risen. However, a financial crisis may have an impact on individual companies or industries and may result in price losses. In addition to the possibility of generating returns based on price gains, a shareholder can also earn money by paying a dividend.
A share is a security, which documents a share of the company. As a result, an investor also has participation rights to the company’s profits. The DAX, in particular, includes strong dividend payers who distribute profits to the investors once a year. Investors looking for a long-term investment with possible dividends for their capital, may be successful with an investment in shares.
With an investment in shares one should have basic knowledge of both the market and the developments of the companies. Even the 30 powerful DAX-listed corporations, which are Germany’s most successful corporations, may experience difficulties due to new legal regulations or other factors which may result in investor losses as recently seen with the VW-shares. One way is to find out about a corporation’s dividend return. This indicator provides information on how profitable the dividends paid by companies are. This could be of interest to long-term investors.
Funds or investment funds are a type of investment, in which managers collect their investors' capital and invest and manage them according to pre-set strategies. However, the funds managers charge a fee for their services, which is deducted annually from the company's own assets - even in the case of loss, which includes the premium. One advantage of the funds is also a disadvantage: The investment is divided into different investments - a so-called investment pool - which ensures the crucial diversification of a portfolio. However, the investor has no control over what the funds are actually invested in. Funds, that are part of companies, receive dividends, just like individual investors. Unlike an individual investor, however, the dividends are generally reinvested directly into new securities, so that the small investor may not even notice that the dividends have been distributed. Recently, special funds have attracted the attention of investors. The so-called ETF (exchange-traded fund) is managed with minimal effort, since these are designed to replicate the development of an index. While a manager of an active fund tries to select the best companies for his portfolio with an economic analysis, the manager of an ETF simply buys the shares of the companies included in the index such as the DAX.
In the financial world, there are alternative investment options. This also includes, for example, life insurances, which are often criticised. Consumers and independent financial experts have repeatedly stated that the ancillary costs are so high that life insurance no longer has an attractive return. Meanwhile, crowdfunding has become an innovative financial investment, not least for small investors. One example is online platforms, such as real estate and start-up platforms, which are specialized in certain asset classes. Returns are clearly above 4%. The investor is in a position to invest directly in selected projects and receives a wealth of information that can assist him with his investment decision. After all, anyone who wants to invest funds profitably must be aware of his personal attitude to these three central investment criteria: return, liquidity and security. All criteria cannot be equally important. It is necessary to find the most satisfactory combination of these three.
Ultimately, every small investor must decide for himself on how to invest. The products presented in this comparison differ in terms of their investment horizon and their hedging. While an investment in the classic savings products promises a low return but maximum security, stocks and funds from the financial market offer much better opportunities, but may include higher risks.