Investing capital How to invest your capital successfully
16.04.2024 • 9 Reading Time
Investment objectives, investment products, the most important investment principles: all the information for your investment at a glance.
Contents
Please note:
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For a successful investment, it is important to keep an eye on your personal investment objectives and your individual situation. This allows you to select an investment that is tailored to your preferences in terms of both term and risk level.
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The magic triangle of investment helps you to pinpoint your requirements for your investment between the aspects of security, returns and availability and thus to specify them in more detail.
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The range of investment products is extremely diverse: find out about the characteristics of the various products and asset classes in order to more precisely define a suitable investment.
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If you want to invest your assets successfully, you should take advantage of the principle of diversification and divide your capital between several investments. This allows you to achieve a more balanced investment risk.
Be it an inheritance, winning a lottery or the reward for hard work: anyone who has a higher capital sum, for example 50,000, 100,000 or 500,000 euros, and wants to invest their capital safely, faces a few challenges. The financial world is large and offers a huge range of investment opportunities, from lucrative equities to solid bond funds and cheap ETFs.
But not all of them are equally suitable for you and your individual requirements. So what do you need to consider if you want to invest your capital successfully? In this article, we show you what is important if you want to invest your assets safely and yet profitably.
Investment objectives:
What do you want to invest your capital for?
In order to make a well-informed investment decision, you must first become aware of what you are investing your assets for and what you want to achieve with it. Are you planning a specific event in the near future, for example buying a home? Or are you looking to make provision for your old age? Perhaps you would like to counteract inflation and preserve your assets? Your investment objective directly influences your strategy and thus also the suitable investment product.
For example, you have 100,000 euros to invest. You have set yourself the goal of doubling this capital to 200,000 euros in 20 years’ time for your retirement. With these conditions, for an accumulating investment you would need to invest in a financial product that generates around 3.6% p.a. (excluding taxes and inflation).
But there’s often no such thing as a perfect financial product that’s tailored exactly to your needs. That's where diversification comes in. This means allocating your investment amount to different investment products, thereby also reducing the investment risks – but more about that in a moment.
One thing is clear, the more specifically you can formulate your investment objective, the better you can find a suitable investment product or products that meet your personal requirements.
Some investors, on the other hand, do not know what they want, but they know even more precisely what they do not want to do – just leave their capital in an account. But an important step has already been taken here. If you are clear about your desired returns, your investment horizon and your willingness to take risks, you can also approach your future capital investment like this and invest your assets in a targeted way.
Investing capital – what’s important?
Many years of work and successful economic activity have now brought you to a place where you have a considerable amount of capital, which is not supposed to just lie in your account and get consumed by rising inflation rates.
So how should you invest your assets, for example your 20,000 euros or 50,000 euros? Even if you receive a larger sum of capital in the event of a bequest, you may not want to directly squander it all on consumer items, but rather invest your inheritance.
It is helpful to classify your investment in the magic triangle in order to assist you in the selection of a suitable investment and also to be able to exclude unsuitable investments:
the triangle consists of the three characteristics of returns, safety and availability. An investment product or financial products of a certain asset class can only ever be positioned between two of those three characteristics.
This means that either one of the characteristics is well represented in a product or it has elements of two characteristics, but both are only present to a certain extent. One thing is certain: no investment can offer you all three characteristics in one product.
Your positioning in the triangle depends on your personal preferences. If, for example, you want to invest your assets safely with your capital not tied up for too long, you will have to forego a high return. Such investments include, for example, overnight deposit accounts.
However, if you want to achieve both returns and a certain degree of safety, you can expect a relatively long capital commitment. This combination can be found, for example, in fixed-term deposit accounts, but also in some funds.
If you want to keep your money available and at the same time generate the highest possible returns, the corresponding investment will not be able to offer you much safety. These include, for example, equities, ETFs or cryptocurrencies. Such investments are usually quite volatile, meaning that a sudden drop in prices is accompanied by significant losses for the investors concerned.
With the triangle you can, on the one hand, determine what characteristics your future investment should have, and, on the other hand, exclude certain investment opportunities from your considerations according to exclusion criteria. These assist you in getting closer to the right investment for you quickly and reliably.
Diversification: Balance for your investments
For a truly successful investment, diversification (or also asset allocation) is essential. If you invest all your assets in one equity or ETF, you can expect to lose all your investment capital in the worst-case scenario of a price crash.
Therefore, the golden investment rule is: “Don't put all your eggs in one basket”. This calls for diversification, which can also help you to balance out your investment triangle in the long term.
By allocating your capital to a wide range of investments, you also spread the associated risks and at the same time ensure better opportunities for high returns. With two different investments, you have already achieved a minimum level of diversification – but the more capital you have at your disposal, the better you can diversify and get the most out of your assets.
You can set different priorities in the design and diversification of your portfolio. Here is an overview of the three most common portfolio strategies:
Renewable energy: your investment in the future of energy
Our energy demand is growing – that’s for sure. At the same time, fossil fuels are losing importance thanks to the megatrend of sustainability and are increasingly being replaced by renewable energy generation technologies. Wind, water or solar: renewable energy is on the rise and will play an essential role in meeting our increasing energy needs.
The constant increase in supply and demand in the renewable energies sector not only has an impact on the economy – but also presents important opportunities for investors. Anyone who already recognises the potential of renewable energy today adds a significant, forward-looking asset class to their investment portfolio.
Investors have a wide range of opportunities open to them to invest in the renewable energies sector. The offering ranges from crowdfunding projects and (risky) corporate investments to renewable energy funds.
If you want to invest in renewable energy in a diversified way, ELTIF investment products may be suitable for you. ELTIFs (European Long Term Investment Funds) are investment funds that invest sustainably in the real economy over the long term. Whether infrastructure or systems for renewable energy generation, as an investor, ELTIFs enable you to participate in future-proof infrastructure or energy projects with attractive potential returns.
Funds: diversification in one product
By tying up various assets in a product, funds are diversified to a certain extent by nature. If you then invest in many different funds, your portfolio will quickly extend across different sectors, countries and asset classes and thus enable you to spread your risk as much as possible. This type of diversification can be found in both traditional and exchange-traded funds, i.e. ETFs.
With ELTIFs such as the klimaVest tangible assets fund from Commerz Real Group, you invest in a total of over 25 wind farms and solar parks throughout Europe with your investment. Investing in different countries and climates offsets any risks and thus enables a solid diversification that benefits investors in terms of risk and return.
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Which investment products are available to you?
There are few limits to the forms of different investment products – in addition to traditional securities or company shares, you can also easily invest in tangible assets, such as real estate or precious metals as well as paintings or classic cars, etc., the latter two tending to be somewhat unusual.
But the different forms also go hand in hand with different conditions and prerequisites, such as the risk class, the potential returns or the expertise required for this. This table gives you an overview of which investment forms are linked to which characteristics. This allows you to decide which one is right for you if, for example, you want to eliminate risks as much as possible and focus entirely on safety.
| Investment type | Risk class | Potential returns | Technical expertise |
| Call money/fixed-term deposit in euros, German government securities | 1 | No loss of value due to inflation | Not applicable to low |
| Call money/fixed-term deposits in foreign currencies, corporate bonds with a good credit rating, open-end real estate funds, European bond funds, bond ETFs, cooperative shares | 2 | Low to medium | Low to medium |
| Crowdinvesting, precious metals, real estate | 2-3 | Medium | Medium |
| Equities, equity funds, equity ETFs of European standard securities or similar | 3 | Medium to high | Medium to high |
| Equities, equity funds, equity ETFs from emerging markets or similar, medium-quality currency bonds, ELTIFs | 4 | Medium to high | Medium to high |
| Derivatives, closed-end real estate funds, collectors’ items, cryptocurrencies, alternative investment funds (AIFs) | 5 | Medium to high | Very high |
Overview of forms of investments
Equities
When you buy shares, you depend on the success of that company. Equity prices can often be subject to fluctuations, but these are usually compensated for in the long term. Equity investments therefore generally offer good potential returns over a long investment period.
Alternative Investment Funds (AIF)
AIFs are a heterogeneous form of investment. They do not depend on the stock market and do not meet the criteria of traditional funds, which is why they are combined as a separate form. On the one hand, this includes really solid investments such as tangible assets, but also risky investment funds such as hedge funds or private equity.
Bonds
With bonds, you invest in fixed-income and therefore fairly stable securities issued either by governments, municipalities or companies. There is a risk for investors in the event of payment difficulties or the insolvency of an issuer.
German government securities
German government securities are government bonds issued by the German government.
Crowdinvesting
With this type of investment, you invest relatively low amounts in individual projects or companies. The terms here are usually quite short. In addition to the good potential returns, the loan risk also plays a role.
Investors are subject to the risks of a subordinated loan, so that in the event of a loss, investors are only paid out at the end if there is any capital left at all.
Derivatives
In the case of derivatives, no own assets are purchased, but bets are placed on future positive market developments in equities or other securities. In addition to high returns, total loss is also possible.
Precious metals
Gold, silver and platinum are among the most common precious metal investments. In addition to the physical purchase of precious metals, investors can also invest in precious metal securities. However, in addition to the performance of the actual commodity price, these are also subject to stock market-related price fluctuations.
ETFs
Gold, silver and platinum are among the most common precious metal investments. In addition to physically purchasing precious metals, investors can also invest in precious metal securities. However, in addition to the performance of the actual commodity price, these are also subject to price fluctuations on the stock market.
Fixed-term deposit
A fixed-term deposit account keeps your capital until a fixed date. Interest rates are usually so low here that they do not exceed the losses from the rate of inflation. Returns are therefore not really to be expected with this investment. Some financial institutions even demand negative interest if your credit balance is of a certain amount.
Funds
Funds invest the fund assets in several individual assets at the same time. A fund can either specialise, for example in the form of a renewable energy fund, or it can include a mix of different forms of investment in its portfolio (mixed funds).
The risks are usually quite low due to diversification, but more costs can be expected as they are actively managed by fund managers.
Cooperative shares
By acquiring units, you become a member of the respective cooperative. This is not only about the economic well-being of the members, but also about their social well-being. Distributions are usually made annually, depending on the success of the cooperative and the mutual agreement on the distribution of profits.
Closed-end real estate funds
Here you usually invest in one or only a few real estate properties. The number of units issued is limited and after the available units have been issued the fund will close. Capital is usually tied up for quite a long time here, and typical cluster risks are also offset by the generally excellent potential returns.
Real estate
When investing in real estate, you invest in a real-world property that you can either rent out or resell after a certain period of time and an increase in value. The most common risks are loss of rent, high running costs or an extremely high administrative burden.
Impact funds
Impact funds are sustainable investments that aim to combine financial returns with a sustainable impact on the real economy. Their unique selling point is that they have concrete sustainability goals and the measures used for them are made measurable and communicated transparently.
Impact funds can take various forms with regard to their specific investment items, for example as equity or real estate funds. Since last year, the klimaVest tangible asset impact fund from Commerz Real, which invests in tangible assets such as wind power and solar systems, has been offering impact investing for retail investors.
Cryptocurrencies
Cryptocurrencies are not only used for payment, but also for further trading or even to generate new assets. Profits are in some cases astronomically high, but large losses can also occur if prices suddenly fall. They also require a great deal of expertise in currencies and network technologies.
Sustainable funds
Sustainable investment funds are also a varied field and comprise equity funds, tangible assets, thematic funds and much more. Investors can invest in reforestation projects, sustainable equity packages or even tangible assets such as wind farms.
Open-end real estate funds
This type of fund allows investors to buy units and sell them at any time in accordance with the provisions. Open-end real estate fund portfolios usually consists of a larger number of investment properties. The profits usually result from the rental, an increase in value or the sale of the real estate.
Collector’s items
There are no limits to the imagination with this type of investment, from whiskey and wine to watches and classic cars to classic works of art, such items can prove to be extremely profitable with a corresponding increase in value. However, a certain level of expertise is required in order to minimise the risks.
Call money
Overnight deposit accounts function like fixed-term deposit accounts, but without a commitment to an investment term. However, the short terms also mean that zero or even negative interest rates must be expected, meaning that such investments are only suitable for very short investment periods.
Start, amount and term: the best way to invest your capital
As much as opinions on investing capital may differ, it is clear that the sooner you invest your assets, the higher your profits will be. Because no matter how simple it may sound: the right time to get started is always right now.
Of course, you don't have to put 100,000 euros in the hands of a single provider, so don't be afraid to start with slightly smaller amounts. The sooner your capital starts working, the sooner you will achieve your investment objectives.
For example, you can start by using around 10% of your capital for a secure investment, and you can increase the investment amount as you wish on a monthly, quarterly or annual basis.
Instead of larger individual amounts, you can also set up a savings plan, into which you can pay 500 euros per month, for example. The cost average effect is on your side here: the lower yet continuous payments make it possible to compensate for the risks of fluctuating markets.
Your individual life situation at a glance
The decision to invest your assets securely and meaningfully is more than worthwhile, especially with a higher capital sum. But you should always keep an eye on where you are in your life and whether you should expect unplanned expenses in the coming years.
If you have children, are they taken care of? Is your car still in good condition or have you got your eye on the latest electric vehicle? Or are you still in the process of paying off your home loan?
If you currently still have debts in the form of ongoing loan repayments, you should first settle them in full before deciding on an investment. In this way, you avoid unnecessary risks in the form of liquidity bottlenecks.
Even with larger assets, you are advised to set aside a portion of them in order to be able to cover all eventualities easily without having to access the invested amount directly. This applies in particular to long-term investments that keep your investment tied up for many years at a time.
Allocate your capital correctly
If you know what type of investor you are - safety-oriented, balanced or growth-oriented - you can make investment decisions more easily. For example, a balanced type might invest €10,000 as follows: 30-40% in riskier products such as shares, 60-70% in products with higher security.
To sum up: Today is a good day for your investment
If you own a larger amount of assets and have used your current account as a safe haven, you have hopefully been inspired to invest more safely and profitably. With the current inflation rate, your capital will otherwise slowly reduce.
But, deciding on a specific investment is not so easy – be guided by yourself and your individual investment wishes.
After all, there is no such thing as “the best investment”. Rather, it should be about finding an investment that can meet your goals and demands under good conditions. Don't get carried away by investments that are too high-risk, but always keep your risk tolerance in mind.
In order to avoid greater risks, you can also benefit from appropriate diversification, which you can achieve either “manually” via different individual investments or in the form of a fund.
If you do not yet have solid financial knowledge and still want to take steps to invest your capital wisely, start with smaller amounts and over time you will gain experience to help you make bigger investment decisions at a later stage.
This allows you to expand your knowledge of the financial market and at the same time invest your assets safely.
Patience, self-confidence and a steady hand – and you too will succeed in investing your capital successfully. Good luck!
Frequently Asked Questions
What is the best investment right now?
The best possible investment is achieved through diversification and thus by spreading risks. For this purpose, you can invest in various individual assets such as shares or in funds, for example with physical assets such as real estate.
How do I invest my capital?
Depending on how much capital is available, you can invest it in various financial products with the highest possible risk diversification. It is best to use a larger part of your capital for stable, security-oriented investment forms.
How much money should you invest?
When investing, ensure that you never invest all of your assets. Make sure that you have sufficient reserves for emergencies, repairs or other events, depending on your income.
How should I divide my assets?
Depending on the focus you determine, you can divide your assets in a variety of ways. Your portfolio can be balanced, value-maintaining or growth-oriented. Those who want to invest their assets securely, largely preferably invest in stable financial products.