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How and where to invest money in Germany?

There comes a point in everyone’s life when the subject of investment becomes important. And for good reason – after all, you want to keep your hard-earned money safe and, if possible, increase it, too.

With that in mind, many people ask themselves the question of how and where to invest money in Germany best. Germany offers a wide range of options – just like its extensive selections of beer, Germany’s investment options are plentiful. But understanding how to invest in Germany can be tricky for newcomers, as the stumbling blocks are often hidden and complex. Fortunately, Yova is changing that!

Nowadays, many people want their investments to be consistent with a fair and sustainable world. There are countless sustainable investment opportunities to meet this demand, but many of these investments don’t actually do what they claim to. Countless companies polish up their image through so-called greenwashing. 

Are you interested in sustainable investments, investing in shares or simply want to find out about the best options for investing in Germany? This article is made for you. We’ll explain everything you need to know to get started on the subject. 

Let’s go!

Different ways to invest money (2020)

The following sections will address the different types of investments. Whether you want to invest your money in gold or real estate, invest in stocks or look for alternatives to a savings account —all investments have advantages and disadvantages. 

Although it would be nice to invest money in Germany without risk, this is unfortunately not possible. But, as we discuss later in this article, you can reduce this risk with a sound and balanced strategy.

By the end of this article, you’ll have a basic understanding of where to invest money in Germany. So let’s dive a little deeper into the options.

where to invest money in Germany

Investing money in a savings account 

Strictly speaking, the money in your bank account isn’t an investment because it’s simply stored there. We still think it makes sense to include it in our list because that’s precisely what many people do with their spare cash. And while banks offered attractive interest rates in the past, this strategy isn’t very fruitful today.

Pros:

  • Deposit protection: In Germany (and throughout the EU), the law insures your savings with up to €100,000 per person, plus additional voluntary bank security funds.
  • Security and availability: Your money is safe from fluctuations and is available immediately if you need to access it quickly.

Cons:

  • Hidden costs: Services provided by banks cost money, and they know how to hide bank charges — which often leads to unpleasant surprises.
  • Negative returns: Interest rates on savings accounts are currently around 0 to 1% per year, and no increase is expected. Once inflation is factored in, you end up losing money!

Investing money in funds 

If you want to know how to invest your money in funds, the first step is to understand how investment funds work. A fund consists of many different securities and is also known as a “collective investment”. The money of all investors is pooled together and managed by fund managers. You don’t have a say in selecting shares, or the buying and selling decisions. In short, funds take care of the question of how to invest in Germany — and this has both advantages and disadvantages.

Pros:

  • Diversification: Widely spread investments that include different industries and regions spread your risk (rather than having “all eggs in one basket”). Some funds focus on specific sectors or countries, however.
  • Returns: Historically, many funds have generated good returns over the long-term. In fact, passively managed funds have even outperformed active funds.
  • Liquidity: Although funds shouldn’t be used as short-term investments, you can get your money in a few days, if necessary. This applies to most funds, but not to all!

Cons:

  • Hidden costs: The small print often contains high additional fees that are not visible at first glance. The final cost of your investment can even be many times higher than what you expected.
  • Lacking sustainability: You have no control over the selection of shares and your money could become invested in harmful companies. Even some “sustainable funds” are not sustainable at all.
  • No ownership: You don’t own any company shares yourself, but only a portion of the fund.

Investing money in ETFs 

ETFs (Exchange Traded Funds) consist of a variety of shares, just like traditional funds. The difference is that they are traded on a public stock exchange, rather than being sold privately through a bank or wealth manager. The majority of ETFs are passively managed index funds. This means they are designed to track an index, such as the DAX or the MSCI World. That’s why if you want to invest your money in ETFs, there are special considerations to be aware of. 

Pros:

  • Diversification: As with traditional equity funds, investments in most ETFs are widely diversified, which spreads your investment risk.
  • Costs: Passively managed ETFs typically offer lower fees than actively managed funds. Nevertheless, watch out for hidden fees! There are often additional product fees, entry/exit costs, and more.

Cons:

  • Complexity: ETFs are highly complex financial products. Sometimes the manager will create Synthetic Replication, buying ‘warrants’ and ‘equity swaps’ instead of the shares themselves.
  • No ownership: Even with ETFs, you don’t own any shares directly, but only parts of the fund.
  • Lacking sustainability: With ETFs, you cannot make decisions about specific shares, and even “sustainable” and “socially responsible” ETFs contain questionable companies.

Investing money in shares 

Investing in stocks sounds like a scary venture for many beginner investors. But it doesn’t have to be — At Yova, we’ve digitised the methods that private banks have used for decades — making this approach available to those who want to invest smaller amounts and enabling more people to discover precisely where to invest money in Germany.

Pros:

  • Easy investment: Unlike complicated financial products such as funds, there are no complex layers between you and your investment.
  • Ownership: You own your shares directly and, with Yova, your investment is held in an account in your name.
  • Good long-term return: Historically, shares have offered good returns in the long-term*.
  • Control: You choose the exact companies that you want to invest in. With Yova’s online tool, this is very straightforward (and free!). 
  • Sustainability: By having complete control, you can invest in companies that match your values. With Yova, you can also exclude topics that you don’t want to support (such as fossil fuel or weapons).
  • Liquidity: If you need it, your money is available. At Yova, we can sell your shares and return cash to your account in around 7 days. 

Cons:

  • Volatility: Share prices are constantly moving and subject to short-term fluctuations. Anyone who wants to invest in shares should therefore take a long term approach.
  • Risk of loss due to poor diversification: If you invest too much in one area, you risk high losses if that company, industry or region underperforms. At Yova, we ensure you are broadly diversified.

*Disclaimer: The past performance of financial markets and instruments is never an indicator of future performance. 

buying shares in Germany where to invest Yova

Investing money in bonds

Fixed-interest securities, bonds or debentures follow a simple principle: you lend money to a state or a company and receive interest in return. This interest is fixed in advance and usually paid out annually before you get your money back at the end of the term. Unlike a loan, a bond can also be sold. In this case, the new owner receives the subsequent interest income and the final payment.

Pros:

  • Security: Federal bonds in Germany are generally regarded as very secure. The risk of loss is lower than it is with other investments. With other issuers, the risk varies from case to case. Federal Bonds are an excellent example of how to invest in Germany.
  • Minimal fluctuations: Bonds are not very volatile and consequently represent a stable investment.

Cons:

  • High minimum investment amounts: The minimum amount to invest in bonds is usually very high. Many investors either cannot or don’t want to invest in bonds. One alternative is to invest in a bond ETF, which we offer at Yova to balance risk in some customer’s portfolios.
  • Low returns: Again, low-interest rates mean that there’s hardly any return to be expected. Nowadays, it’s often not possible to compensate for inflation when investing in bonds.

Investing money in cryptocurrencies 

Ever since Bitcoin made its debut in 2009, digital currency has been surrounded by myth and speculation. While some early entrants made millions, others have been left burned by the experience.

Even today, cryptocurrencies such as Bitcoin, Ethereum and Ripple are hotly discussed. The market remains extraordinarily unpredictable, and some experts even compare it to the Tulip Mania that swept across the Netherlands in the 17th century! Although these high-risk investments are appealing to some investors, they should be treated with caution.

Pros:

  • Fast and straightforward: Transactions are simple to carry out, happen at lightning speed and are relatively inexpensive.
  • Future potential: The decentralised approach is an exciting alternative to traditional banks and has excellent potential. 

Cons:

  • High risk of loss: Cryptocurrencies are incredibly volatile and could become utterly worthless within a short time.
  • No real return: Digital currencies don’t generate actual returns, but rely on price increases that result from speculation.
  • Respectability: Many cryptocurrencies have questionable business models. There have been several cases of pyramid schemes.
  • Lack of regulation: Bitcoin and others are still poorly regulated. In the future, changing regulations may lead to tax and legal problems for cryptocurrency investors.

Investing money in gold 

Precious metals are one of the oldest forms of investment. In fact, its use as a means of payment dates back centuries. Over the last 20 years, the gold price has risen sharply, although between 2012 and 2019 it experienced a dip

Pros:

  • Long-term investment: Historically, gold has held an underlying value throughout history. Even if losses occur, it’s unlikely ever to be worth nothing.
  • Security: Unlike gold securities or certificates, physical gold is considered to be a more secure investment.

Cons:

  • No real return: Precious metals such as gold and silver don’t produce a profit unless supply and demand forces the price up. 
  • Costs: In addition to the acquisition costs, the fees for safe storage and insurance should also be considered.
  • Harmful effects: Precious metals are often mined under extremely environmentally destructive conditions. Human rights are also disregarded in many places.

Investing money in real estate 

Real estate prices in Germany have risen rapidly in recent years. Especially in large cities such as Munich, Hamburg or Frankfurt, the prices for condominiums and houses have increased dramatically. As prices go up, many people start to feel the “fear of missing out” and want to jump on the bandwagon and invest in real estate.

Many people prefer to invest money in a private home of your own and thus save on rental costs, provided that sufficient equity capital is available. However, if you want to invest in real estate, there are some aspects to consider.

Pros:

  • Affordable living: A private property is a good opportunity to put the monthly expenses for the rent back into your own pocket.
  • Valuable investment: A property is a practical investment because even if its value falls, the property can always be used. However, this is primarily the case with paid-off objects — otherwise, there’s a risk of high losses.
  • Low volatility: Housing prices in major German cities have generally been increasing in recent years. Some take this as a positive sign, while others believe it may indicate a real estate bubble

Cons:

  • High acquisition costs: Due to the price development, real estate in Germany is often costly. In addition to the actual purchase price, there are also high ancillary costs such as notary and brokerage fees and land transfer tax.
  • Inadequate diversification: The private home usually soaks up a large portion of your total wealth. Often even other means are used to finance it, such as the pension fund. The next property crisis, which experts already fear, may have dramatic consequences in this respect.
  • Administrative expenses: A property must be managed; for rented properties, a tenant’s contact person is the owner. This means a high expenditure of time and money. This responsibility can be delegated, but this causes additional costs.
  • Maintenance costs: Ownership imposes obligations, especially for real estate. The maintenance of properties should always be taken into account. A crumbling roof or a broken heating system can quickly lead to high costs.
  • Low liquidity: The availability of money from property is almost non-existent. A sale can take a long time and is both labour and cost-intensive. 
  • High risk with financing:  Investing in real estate often requires borrowed money. If prices fall, you still have to repay the debt at the previous price. Moreover, rents in Germany are already stagnating in some cases, so that according to experts, there is often no longer a reasonable risk-return ratio.

What is the best investment strategy?

As you can tell, there are a lot of different options. So how should one invest money?

At Yova, we focus on stock market investments. The prerequisite is a well-diversified portfolio of at least 30 to 40 stocks. The stocks should be spread across different sectors, countries and currencies and include companies of various sizes. Depending on your age and expected investment time horizon, your Yova strategy may also contain a proportion of government bonds to reduce the expected volatility of your investment. You can choose to increase or reduce the proportion of bonds in your portfolio, depending on the level of risk you are comfortable taking. Of course, it’s important that you consider your own personal circumstances and seek independent advice before making an investment decision.

In the following sections, we explain the cornerstones of our investment approach.

Long-term investment in shares 

The biggest mistake many make when buying shares in Germany is to take a short-term view. Stocks are subject to constant fluctuations. Even large movements from day to day are not uncommon. In fact, they’re relatively normal!

But what about real crashes? Again, a crash doesn’t immediately mean you lose money, as long as you don’t panic and sell everything. History shows that major stock markets have always recovered after crashes, recessions and economic crises. For investors, it’s just a matter of “holding on” and riding out the storm. Losses occur when people try to make a quick buck and trade rashly.

This is why many of the world’s most successful investors approach the stock market with the mindset of “buy and hold”. Generally, it’s best to avoid investing in Germany in the stock market if you intend on withdrawing your investment in less than five years.

Diversification when investing money

Apart from major global economic crises, which fortunately don’t occur too often, many crashes are limited to specific industries or regions. This phenomenon harbours both opportunities and risks.

For example, if you had invested all your savings in technology companies in the 1990s, you would have lost almost everything in the early 2000s. The so-called dot-com bubble destroyed many tech companies and threw the entire industry off balance.

The antidote to this risk is diversification. By spreading your investments across different industries and countries, you can design an investment that more effectively offset losses in individual sectors or regions.

Where to invest money in Germany — which shares to invest in (2020)?

A common question from investors is whether they should invest in German or foreign shares. The answer is both! Although Germany is considered a relatively safe place to invest money, a well diversified portfolio will always include stocks from a range of developed countries around the world. Yova strategies typically contain stocks from Germany, Europe and the US.

At Yova, we take care of this selection process for you. Using our online tool, you pick the sustainable and socially responsible investment themes that are most important to you. You define your financial profile and your risk preferences so we can create a portfolio that is tailored to your needs. A list of the company stocks that meet your criteria is then displayed immediately. With every adjustment you make, our algorithm ensures that your portfolio is financially sound. This way, you can control where you are investing without compromising your returns. 

Note: German users will be able to create their personal investment strategies in the first quarter of 2021. In the meantime, you can read more about our approach in our whitepaper.

Sustainability for investments

Many investors today want their investments to be sustainable and actively contribute to a better world. With Yova, you can do just that. It’s our mission to make Impact Investing easy and accessible for everyone.

There are still significant differences in the definitions of sustainable investing. As it’s challenging to invest in a genuinely sustainable way due to a lack of transparency, we’ve developed our own methods. By doing so, we ensure that all the shares in your portfolio are in line with your personal values. Read more about our selection process and socially responsible investing in this article.

When is the best time to invest in shares?

Unfortunately, the perfect time to invest in equities is hard to pinpoint. The reason is that it’s almost impossible to guess what the market will do next –  decisions only turn out to be right or wrong in retrospect.

Of course, you probably still want to buy shares at the lowest possible prices. But if you’re asking, “How do I invest in stocks in Germany if I don’t know when the low point has been reached?” we’ll remind you not to think too short-term. Fluctuations often eventually merge. This means that finding the ‘correct’ entry time into the stock market is less crucial over an extended period. 

Whenever you choose to invest, remember this: your investment is best served in the long term. This means you should be able and willing to hold your investment for several years, as your money will increase due to compound interest. So while you could put off investing for a few more years, the best time to invest in shares is as early as possible.  However, two aspects are essential: First, you should be willing and able to hold your investment for several years. So if you think you’ll need the money again in a short time, then you should refrain from investing in shares. Secondly, bear in mind that your money will increase due to compound interest. So the earlier you start investing, the better!

How much money should I invest?

You don’t have to be rich to invest in shares, but we suggest starting with at least 2000 euros. This amount ensures that your portfolio is sufficiently diverse across different industries and countries – meaning that if one company takes a financial downturn, your portfolio isn’t entirely compromised. 

Don’t have 2000 euros? With Yova, you can get started with as little as 500 euros – read how in our article on investing small amounts

Remember: you don’t have to be rich to invest in shares. What’s important is that you start investing – even with small amounts of money. 

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How can I start investing with Yova?

We make it easy for you to invest your money. To do this, we’ll work with you to create your personal investment strategy. This way, you can always be sure that you only invest in companies that fully match your values.

Once you’re happy with how your investment strategy looks, you’ll open an account and transfer your investment amount. We take care of the rest. This includes the stock market transactions, as well as monitoring your investment and making adjustments to ensure that the level of risk in your portfolio is managed. 

Summary: How and where to invest money in Germany?

In this article, we’ve covered investing in funds, shares, cryptocurrencies, and more. Regardless of which investment you choose, only do so after considerable research. You’ll want to feel confident and informed about all the advantages and disadvantages of each type before choosing where to invest money in Germany.

If you would like more information, please don’t hesitate to contact us. Our friendly team will be happy to answer your questions and help you to set up your individual investment strategy (coming soon in Germany!). 

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Introducing a new kind of investing, where you back companies that match your values. It’s sustainable, socially responsible investing – without compromising returns.