According to a survey about saving and investment behaviours, the banking association concludes that senior citizens handle their finances better. The elderly seek professional advice about investments more than the younger generations do. The latter frequently uses the Internet to obtain information about investments. Moreover, the results of the survey suggest the following: The trend will further shift from traditional investments to online investments. This also includes implementing one’s own decisions about the choice of assets. Not only are the lower costs involved in online investments attractive, but there are additional advantages depending on the offer that have been made possible because of the Internet.
Those interested in investing can find all asset classes online and can directly close contracts. One can differentiate between financial investments that can be bought online directly from the investors and those that can only be signed through a broker. Closed investment such as funds are compared and brokered online. However, due to their complexity they are not bought or sold online. Instead they are traded in a secondary market.
Clients can securely deposit their funds in a deposit account. The account opening online is simple and comparison portals allow for a comprehensive overview of offers by direct or branch banks. Internet banks that do not provide customer service and can therefore offer higher interest rates, generally offer the best conditions. Time deposits, savings accounts and other fixed assets offer lower deposit interest rates.
Investors can also order loan stocks, shares, certificates and other derivatives online. Dealing with securities promises long-term lucrative returns. Equities, derivatives, fixed income securities and index funds may be traded on regulated stock exchange markets. The fund investor can buy open-ended investment funds online via his bank, directly from the capital management company as well as from discount brokers. Investors need a securities account and a well thought out strategy or good intuition in order to achieve higher returns. Promising stocks are rarely found by coincidence, but instead through thorough research and analysis. Pricing developments, news and business numbers are continuously available on websites of banks, stock exchange markets, financial services providers and brokers. In addition to that, investors require the 12-digit ISIN or the 6-digit WKN of the security paper because only this will enable the proper identification of the security paper. Online banks offer securities accounts free of charge, however there will be low order fees. When dealing with securities investors have to pay close attention to fees, as they will immediately decrease the return of the investments. It is also important to know how much capital should be used for an individual investment in order to distribute the associated risks evenly. The advantage of the securities account is that the acquired financial instruments remain unaffected in the case of the bank's insolvency. Due to risks of default and fluctuations in rates and performance, investors struggle with these investment decisions.
Securities and commodities, such as gold and platinum, can also be traded on exchange markets. Physical investments in precious metals, such as bars and coins, can be bought from authorized dealers on the Internet. A dedicated stock exchange market for gold bars and coins is currently in the making. Foreign exchange transactions are subject to high risks. Forex is generally traded by short-term oriented speculators where the investment hardly plays a role. There is only one global Forex market where all investors can trade online. Foreign currencies are traded indirectly when the securities are listed at a foreign exchange market.
In order to spread risks more evenly, there are new and alternative investment tools that enable users to invest with small sums in different investment classes online. The generic term used is crowdfunding. Investors can generate large investment capital with low individual investment sums. The goal is to achieve high returns. Due to the risk of default it is advisable to distribute investments on various objects. There are the following forms of crowdfunding as listed below:
Crowdfunding is not a typical investment in the strict sense. Crowdfunding mostly financially supports social or ecological projects of companies, self employed people, private individuals or creative artists. These are exceptional projects that may not be realized without the support of the crowd. In contrast to other forms of crowdfunding the emotional return is paramount. Investments are considered gratuitous contributions or the consideration for the crowdfunding consists of material bonuses and other material rewards. These include the free use of the finished product, such as a DVD for example, or the free attendance of a film premiere. Whoever chooses crowdfunding, also accepts the immaterial value of his investment.
Peer-to-Peer lending connects debtors and creditors. Prospective debtors can turn to a suitable online platform, if the bank is not willing to grant a loan. The debtor will receive funds from different financiers who are looking for a lucrative investment. The debtor pays interest to the creditor according to the investment amount, repayment risk and term. Since several creditors contribute with small sums, the risk of the debtor's inability to pay is borne by many. Platform providers also offer additional services for an even better risk mitigation. For example, the creditworthiness of debtors is assessed in advance with a Schufa inquiry, a score value is published or prospective creditors are classified into certain risk groups so that potential investors can more easily assess the investment. The same concept is also used for loans to small or medium-sized businesses and communities that use external capital to finance projects.
Equity Crowdfunding uses equity capital in the financing of an object or a company. The investor is involved with a share in the company and/or the profit of the project. Young companies with innovative ideas are supported. Associated risks of financing start-ups are naturally very high because investors invest in newly founded businesses with innovative business models. Nobody can seriously assess whether or not the business idea will succeed on the market. Young companies are not making profits yet and can only hope for future customer acceptance and high returns. Investors however will also profit from these.
Real Estate Crowdfunding refers to individual residential and commercial buildings and properties. Small investors can generally invest in a profitable real estate asset with as little as € 500 by using a subordinated loan or profit participation rights. These short or medium-term projects include new constructions as well as existing properties where project sponsors will be provided funds in order to finance the projects. Selling or renting these properties will achieve high returns. When a property developer receives funds from investors, they act like equity. Investors will receive an annual fixed interest for the funds provided. Even though there are individual secondary market offers for crowd investments, financiers cannot rely on ending their investments prior to maturity by finding a taker for their shares. There are no fees for investors, which is an advantage unlike open or closed real estate funds.
Investors are advised to pay attention to investments being comprehensible and transparent and diversify according to issuer, investment horizon and different asset classes. Regardless of the investment amount, investments should never be made with borrowed capital. The more complex an investment is, the more time should be put into the research and the assessment of the investment object. The possibility of a quick and simple online investment process must not lead to more risky investment decisions. These online processes do not exempt investors from a thorough assessment of the investment.