3 tips: How to invest your money most effectively

Gold, stocks, overnight money: There are many ways to invest money. But which aspects should be considered? We show three helpful tips.

The interest level of low-risk investments such as life and annuity insurance has been falling for years, and the classic savings book has long ceased to be an issue. Here hardly still the rising inflation can be worked against. Nevertheless, the German savers, almost traditionally, hardly rely on the risky capital markets: According to the Deutsche Bundesbank, in 2017 there were about 2.1 trillion euros in deposits on current or call money accounts.

Tip 1: A stable foundation

If you have debts, you should first reduce them if possible before you think about investing. This is because interest rates on current loans are usually higher than the returns you can expect from your investment. In addition, you should get an overview of your initial situation. This includes: current earnings and investments already made. It is also important to consider what kind of professional relationship you are in. A civil servant can plan differently than a freelancer whose projects change every six months. If you want to invest money on the capital market, you should be sure that you could theoretically do without it. If you plan to use the money for larger purchases in the medium term, an investment on the stock market is probably not the right way to go.

Tip 2: Balancing risk and return

Normally the rule of thumb is: For short-term returns you have to take a higher risk than for a long-term investment. The reason: short-term fluctuations are the order of the day on the stock exchange. This means that high profits can be achieved in a short period of time – but a lot of money can also be lost. If you invest long-term, you can compensate for setbacks over a longer period of time. If possible, we recommend driving with a longer investment strategy and not constantly regrouping your money, as it is usually more relaxed, and the returns are usually higher.

Tip 3: Divide your finances in the best possible way

Place your trust in the right mix for your system. In the long run, only taking risks is just as ineffective as defining the safe investment as the only strategy. The financial investment should always stand on a transparent base. As a rule, call money, time deposits and ETFs are recommended. Overnight deposits are the safest to value here, but yields are not too high either. Time deposits are also safer, but at the same time higher profits can be achieved. However, you cannot access the money for a longer period of time. ETFs shine with low fees, in addition, the returns with relatively low risk are significantly higher than with overnight money and time deposits.

Source cover picture: iStock / RichVintage