What are investments — and which types of investment actually exist?

It is not the current account

Financial investments are investments that aim to generate income and maintain or increase capital. These are various forms of financial investment, which vary depending on a person's individual goals, risk tolerance and financial situation. For example, stocks, bonds, real estate, gold or fixed deposits are eligible. Returns on the respective investment can include interest, price gains, price increases or dividends.

All forms of investment have their own advantages and disadvantages. With the exception of the current account: This “money deposit”, which is particularly popular with Germans brings virtually no return and therefore does not qualify as an investment.

Financial investment — as individual as you

The selection of the right investment depends on individual financial goals, risk tolerance and investment horizon. Investors should therefore first be aware of when and how much money they need. For example, the investment goal of “new cars in five years” requires a different strategy than “closing the pension gap in twenty years.”

Investments such as the savings account or savings account, call money account, fixed-term deposit account, money market fund are suitable for short investment periods. With a medium-term investment horizon of five or six years, investments such as installment savings plans, federal treasury bonds, Pfandbriefe, equity funds or alternative investments such as digital shares. Capital life and pension insurance, stocks or equity funds, index funds, real estate, closed-end funds, precious metals or commodities are suitable for long-term investments.

Depending on the investment period and investment objective, factors such as risk, return expectation and the availability or liquidity of an investment must also be considered. However, these goals are in mutual competition, as no form of investment can fully cover all three requirements. For example, fixed-term deposits are a very secure investment, but they yield less returns compared to sometimes risky stocks.

Forms of investment

Regardless of the individual investment strategy, it is advisable to diversify your portfolio to diversify risk. Or to put it colloquially: You shouldn't put all your eggs in one basket. Investors should therefore be aware of these popular investments and, if necessary, integrate them into their portfolio:

• Savings book and call money accounts: They offer low returns, but also low risk and good availability — the money can be withdrawn at any time. Interest rates on call money accounts are generally higher than on savings accounts, but lower compared to longer-term investments such as fixed-term deposits.

• Fixed deposit: Here, the money is invested for a pre-defined period and interest rate. The term of fixed-term deposits can range from a few months to several years. The longer the term, the higher the interest rate is usually. Thanks to the relatively high level of interest rates, Fixed-term deposits have been a revival in Germany since 2023.

• stocks: This includes investments in company shares that can entail a higher return but also higher risks than the types of investment already mentioned. Stocks are relatively liquid as they can be bought and sold at trading venues. The potential return of shares is based on price gains and possibly also Dividends (profit sharing) together.

• Bonds: Many bonds can also be traded on the stock exchange. In contrast to stocks, however, they have a fixed term and usually fixed interest rates. Bonds can be issued by various issuers, including governments (government bonds), companies (corporate bonds), municipalities, or development banks.

• Investment funds: This diversified form of investment includes equity funds, bond funds, mixed funds and money market funds. Each fund invests in various types of assets in accordance with its investment objective and is managed by a fund manager. Most investment fund shares can be traded flexibly on the market. Your risk/return profile is highly dependent on the respective assets.

• ETFs: An ETF (“Exchange Traded Fund”) is an exchange-traded index fund that tracks the performance of an index, such as the DAX. The biggest advantage of ETFs over actively managed investment funds is their lower costs.

• real estate: The purchase of real estate as a form of investment is associated with high costs. The purchase price, the loan and running costs play a role here, which reduce the return. In addition, real estate is - with the exception of digital real estate shares - cannot be traded flexibly. Property owners can earn returns in the form of rent payments or price increases when selling.

• raw materials: Investments in physical commodities such as gold, silver, or oil can be made directly or indirectly. Some investors prefer to own physical commodities such as gold or silver directly and buy corresponding bars or coins. Commodity futures, on the other hand, are contracts that regulate the purchase or sale of a specific commodity at a fixed price at a future date. These are exchange-traded futures contracts that are based on a commodity. In general, trading commodities requires a great deal of knowledge, as the commodity market can be complex and the performance of individual commodities can be highly volatile.

• Cryptocurrencies: Digital currencies such as Bitcoin or Ethereum have been very volatile for years and are therefore more suitable for speculation than for long-term wealth creation.

• (Digital) tangible assets: You have to differentiate digital shares on the blockchain from cryptocurrencies. Platforms like FINEXITY They use blockchain technology - but only to make digital tangible assets in real estate, classic cars or art securely and flexibly tradable on the secondary market.

Advantages and disadvantages of investments

Investments play a crucial role in financial security and wealth creation. By investing, investors can earn returns that dwarf interest rates. A sensible investment can therefore help to achieve important financial goals - for example for buying a house, financing children's education or closing the pension gap. Investments are also important to counteract inflation. This is because money in a current account or savings account gradually loses value over time. Despite these advantages, investments should be chosen with the necessary care and risky speculation should be avoided. Because high return promises always go hand in hand with high investment risks.

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