How can I invest my money perfectly? Many Germans ask themselves this question – the magic triangle could provide help with investment decisions.
Even though many people may wish that, there is no such thing as a perfect investment. The three main goals of investing – liquidity, security and profitability – compete with each other and cannot be achieved at the same time. If you want to invest your money, you have to make compromises and decide for yourself which goal should be given the highest priority.
liquidity
The first goal that is sought when investing according to the magic triangle is sufficient liquidity. What is particularly important to investors is to be able to access payment methods quickly and easily in order to be able to meet any payment obligations promptly.
Therefore, Stiftung Warentest always recommends in its advisory financial magazine “Finanztest” to keep two to three months’ salary in the account as a reserve. Even though the interest rates in Germany on current account accounts are currently very unattractive for investing money and are close to zero, with this investment method customers have the opportunity to access their stored money at any time. According to Stiftung Warentest, for example, forced access to the overdraft of the current account should be avoided if there is a lack of liquidity due to the significantly higher interest rates.
Security
However, the annual Gotha study on the investment behavior of Germans shows that people in Germany have a different priority when it comes to investing. In a random survey of 1,001 German citizens in January 2020, 52 percent of those surveyed stated security as the most important goal when investing. The “security” cornerstone of the magic triangle primarily refers to the preservation of assets. Therefore: German investors absolutely want to avoid the money they have invested in their account becoming less in real terms. To prevent this, customers are willing to neglect another corner of the triangle, profitability.
According to the Saxony Consumer Center, higher security leads to lower returns; The goals of security and profitability therefore compete when investing money. With luck, according to the consumer advice center, the Germans can just about compensate for inflation at the current interest rate levels and thereby maintain the purchasing power of money, but in no way increase it. According to experts, examples of safe investment options are fixed-interest investments, such as bank savings plans or fixed-term deposit accounts.
profitability
According to the results of the Gotha study, German investors perceive high returns as the least important criterion for their investments. For only ten percent of those surveyed, profitability is the most important factor in investment decisions. Nevertheless, Karin Baur, an expert at “Finanztest” advises in an interview published by Stiftung Warentest to have the courage to return: “Nobody should take more risks than they can or want to. But if an investor wants a higher interest rate than the current safe one, then he has no choice but to add riskier investments,” the expert explains to Stiftung Warentest. For this purpose, Baur primarily recommends shares in the form of broadly diversified equity funds.
“We always recommend mixing different forms of investment when investing. If you have only had interest investments so far, you could, for example, spice up your savings with a small portion of equity funds,” advises the expert in the interview. Her colleague and financial expert Michael Beumer also supports the advice and recommends using riskier investments as an admixture. According to Baur and Beumer, stocks or ETF fund savings plans are particularly suitable for this.
Other investment decision factors
Nevertheless, according to industrial engineer Markus Scholand, Germans’ investment decisions are not limited to these three goals: “Many people do not decide on investments solely based on returns, risk and liquidity,” explains the financial expert in an interview with Stiftung Warentest. According to Scholand, “the location of branches, the type of advice, the distribution channel, gender, ‘social status’ or current topics in the media” are also decision factors when investing. According to the expert, even the availability of parking spaces can play a role in customers’ investment decisions.
Pauline Breitner / editorial team finanzen.net