FINGESStock Market ABCs
Mixure is keyYour asset recipe
Have you ever tried to bake grandma’s marble cake and forgot to add the cocoa powder? Right: without this ingredient, this cake is only half the fun! The same is true for asset accumulation. Here, too, the right mix is important – funds and bonds have proven to be reliable basic ingredients. Thanks to a suitable baking powder (take shares for example) the dough will rise by itself. But what are the “secret ingredients” and what to watch out for when using ingredients like derivatives or other leverage products to refine your own recipe? Our advice: Ask someone who’s experienced or take a “baking class”. Seriously! Last but not least: do not open the oven door too soon! Perfect timing and a good portion or patience are just as important as the ingredients, because in the end you do not want to see your beautiful cake collapse right in front of you simply because of your impatience.
INGREDIENTSBonds, Funds & Stocks
Bonds are investments that governments us to finance their expenses. In former years they were considered a must have for accumulating money, because they offer fixed-income securities. Interest rates, duration and redemption are all fixed in detail beforehand. They used to be a secure investment, that was also attractive due to monthly interest payments. Especially recommended to people with a risk-shy nature, but a good portion of patience. Government bonds have lost their reputation as super safe investments due to negative developments in recent years. Nevertheless, there is still a good amount of countries with a good credit ranking (yet probably low interest rates). Compared to equities or funds, the return opportunities are not that good. But it would be a mistake to not take bonds into consideration in general.
Funds are an absolute basic ingredient of any asset strategy, offering high return opportunities, security and flexibility. Even people new to this type of investment or investors with a smaller budget (saving plans start at 25 Euro/month) are able to build a fortune. Fund managers are in charge of what a fund is made of, meaning what the mixture of a fund looks like. They usually have certain investment focal points but try to guarantee a quite balanced and safe mix, which can consist of e.g. German and/or international bonds, fixed-interest securities, real estate or raw materials like gold, or oil, etc. In Germany alone there are more than 4.500 funds. As an investor you retain ownership of your own shares of the fund you invest in. Some funds allow broad flexibility for making investment decisions and allocations. And of course one can always choose the investment focal point from the very beginning.
- mixed funds
- real estate funds
- stock fund
- indexfunds (ETFs)
- pension funds
Buying stocks means that you literally have an ownership stake in the corporation/company that issued it. Buying stocks is a very old form of investment. As early as the 17th century, companies have used this form of investment to collect funds from investors in order to promote their business. If the company is successful, the price for the stock rises and on top the companies might share a part of their success with their investors in form of dividends (distribution of a portion of a company’s earnings). That’s why it makes sense to only invest in companies that you believe in or if you are well-versed in the company’s industrial sector and want to profit from turnaround phases by means of turnaround shares.
„The best thing that happens to us is when a great company
gets into temporary trouble …. We want to buy them when
they’re on the operating table.”
Gold and the emotions
People have always been fascinated by gold and often buy for emotional reasons. As a rule, however, this investment should always be based on why one is motivated to buy or what is the purchase intention. If you buy gold in order to protect yourself in case of a financial crisis, you should buy real gold. If you buy gold as a means of investment with the intention of achieving a return, you should really get detailed information about the different forms of investment beforehand. Gold does not provide interest or dividends, so the return is solely determined by the current price trend. And this of course is always driven by demand. Unfortunately the belief that the gold price is something super stable and will only go up is a myth. So what share of gold should you add to your wealth recipe?