Investment basics: goals, time, risk and costs

First clarify your own situation

BaFin recommends first getting an overview of your own finances and building up reserves for emergencies. As a guideline for an emergency reserve, it cites roughly three months' income in a quickly available, safe form such as instant-access savings (Tagesgeld). You should pay off existing debts before you invest money.

Setting the investment goal

BaFin names three classic investment goals: security, availability and return. They cannot all be maximised at the same time. Anyone looking for high return opportunities has to accept higher risks. Anyone who wants to have access to their money at any time usually gives up return.

Time

The investment horizon (Anlagehorizont) determines which investments come into question. With securities, according to BaFin, longer investment periods increase the chance of more stable results, but do not guarantee them. Money you need in a few years therefore does not belong in investments that fluctuate strongly.

Risk

The higher the promised return, the greater the risk of a loss of capital as a rule. What matters is which fluctuations and losses you can bear financially and personally. This depends on your income, your reserves and your personal disposition.

Costs

Investing money often causes costs that reduce the return, such as front-end loads (Ausgabeaufschläge), ongoing management costs or custody account fees (Depotgebühren). Providers must disclose costs and their effect on the return in advance. Check and compare these before you decide.

Reviewing your portfolio regularly

Your situation and the markets change. BaFin recommends reviewing your own portfolio regularly and adjusting it where necessary.

This article is general information, not investment advice (Anlageberatung); no return forecasts are provided. Losses are possible with investments.