Best ways to invest money in Germany

137 posts in this topic

Hi,

 

I would like to invest small amounts of money on a regular basis. I'm talking real small amounts(couple of hundred euros per month maybe.) And, I'm willing to do that with some risk. As far as I know, taking the risk factor in consideration, you can get the maximum returns from buying shares. The problem is that my knowledge on the subject ends there and I don't know anyone who can help either. I'd like to start out with a couple of thousand euros. Any suggestions?

 

Thanks for any information.

 

J

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There are a number of TT advertisers that would help you with such a thing. I have dealt with Patrick Ott in the past, and he is always here giving free advice (username: Starshollow) so you could start by contacting him.

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By all means, talk to an expert, particularly given any tax implications, but consider dividend reinvestment plans in the US- non-US residents can invest in them and they are designed for the relatively small recurring investments you want to make. See moneypaper.com (there are other sources of info). They work best for US residents because most dividends are only taxed at a 5% rate in the US, but because of the US-Germany tax treaty you should not be at a disadvantage with them vis-a-vis any other dividend-paying equity ownership.

You won't hear about DRIPs from anyone who gets commissions for selling financial products because there are none for financial advisors or salespeople. Many fee-only financial planners don't know about them.

Just in ase you're wondering, I receommend The Moneypaper as a former customer. I have no other affiliation with the company.

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Conquistador: just checked the site "moneypaper" and it is indeed very interesting. Good thing about it is that it invites people to invest in the stock markets for long term investment. And of course if you buy stocks directly you can always do that more or less for free, fees are alos close to zero if you do that in Germany through a number of plattforms.

But there are draw-backs:

i) in the drip portfolios they only suggest stocks from the US. While this is a typical investment mistake most people do, to invest only in stocks of the home country and to disregard other markets as being to risky, it should not happen to a website claiming to give professional advise. For someone living in Germany on top of focussing only on one stock market it would also bring additional inheret currency risks

ii) people should read about "behavioural finance" and the typical decision traps and mistakes common in home-made investment strategies. Over-confidence, use of bias data, confirming evidence trap and wrong understanding of risks and chances are only a few of the challenges to one self if investing in stocks. As is the decision to invest only in companies you know... guess lots of people new Enron, right?

iii) there are numerous so called "financial advisors" out there who only work to maximize their profits and not the clients, I grant you that. And in Germany probably more so than in several other countries where the market is more regulated. Just to compare numbers: in the U.K. as far as I know there are about 40.000 FA, in Germany there are some 400.000 people claiming to be FAs. But soon through new EU-regulation there will be a major change in Germany as well and more than 2/3 of these will either vanish or will have to declare that they are nothing but insurance agents or dependent multiple agents instead of free independent advisers. Unfortunately the market in Germany seem not to be ripe yet for financial advise based on a fee for service, thus most of the business is done still on commission and I could not agree more that that disturbs the performance of many advisers. Having said that, there are also bad apples among lawyers, car repair men or software programmers: but would you advise everyone to rather read the law books themselfes and work out their own defence? Probably not.

 

I don't want to get in a rant here because from my own daily experience where I analyse investment portfolios that have been "sold" to clients by German banks and "Finanzberater" I can only agree that before you waste so much money on investment that do not even beat the benchmarks you might as well buy a couple of stocks yourself and be happy with it. But I would like to warn to see this as the ultima ratio for investment: there are better strategies and they require professional advice. The do cost money, though.

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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HI,

 

I recently started reading about Swing trading. I have a trading account in Comdirect and I am happy with it. The commissions and the tools available are pretty good, but I have not tested many others (except one other bank).

 

Better open a MusterDepot in Comdirect which is for free and then start playing with it. You can use it as if you are doing a real trading but it is just a dummy. So you will gain a good experience regarding whether your strategy works fine or not.

 

One bad thing is that it is in German. But mostly all the terms are understandable as therms are not existing in German and used as is in English.

 

May be other experts who are trading can also form a group and discuss and share some tips, and in the end its upto individuals to decide whether to buy or not.

 

I am using Chart Analysis (Technical Analysis) to do the trades. So i use the trends, RSI, Stochostiks (slow & fast), momentum, Willimas %R.

 

Any other tips are a welcome. Also if any one wants to share the analysis and discuss I am ready.

 

This is in no way an advert for the Comdirect, nor am I an investment adviser. I am just an individual who started trading six months back.

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hope you are also using Markowitz theory for your investments ;-)

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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HI Starshollow,

 

Not really, I am not following a particular theory, but I selected some of the technical analysis types (not all). May be as you mentioned it is the same as the Markowitz theory, but I will read about this theory.

 

By the way do you also do the trading, if yes can you provide me some tips or share, like the best bank regarding commissions, best day regarding volume and so on.

 

These are the things I am thinking of following,

 

1) To invest per order always some Euro 1500 - 2000. Since the execution comissions come around Euro 16, it is always better to put money in a large sum rather than making 3 orders of Euro 500 each

2) Mostly the high volumes are on monday, tuesday and on Friday. So better trade on these days to really execute your order

3)In comdirect they give some tips, like Expert chart analysis, and buy and sell signals. So select these companies and do your own analysis and jump into it.

4)There are always pitfalls, like on a high volume trade day, even though the rice seems to go down a little bit some people deliberately, execute orders of very low volume for a higher price. So this trigger enables the thoughts of others or new comers that the price is going high and adjust their volumes accordingly. (This is not always true but mostly the case)

 

thats all I know, to add it is also good to add fundamental analysis to your technical analysis but not really necessary. As of now I am not doing fundamental analysis, but selecting the stocks which I have heard of like AMD, Adidas, Siemens, IBM, Google...etc, etc.

 

Any more tips to add or am I totally on the wrong way??

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To answer the original question, yes, shares are generally your best bet. You would be well-advised though to buy at least 15 different stocks as this has been shown to bring down risk the most and its not too many stocks to keep an eye on. Furthermore, I would work on a time-frame of at least 3 years going 5. And I would start small, get a feel for the market first and then slowly build up. Never invest money you cannot afford to lose.

 

I would forget about technical analysis for now as that is for people aiming to beat the market and is in itself far riskier and unrpoven. Same goes for fundamental analysis. Most analysts use both, but the deciding factor is really if you believe the stock will do well. For this there is no proven method. No one can tell the future. Just buy a well-diversified portfolio and if you hold on to it long enough, the market has proven that it can beat other forms of investment on its own.

 

There are more than enough books out there as well as websites that explain the basics of investment if you want. You could also invest in a mutual fund aka unit trust. But then they take a slice of the earnings.

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Starshollow- I just would like to clarify a few things. Like many other Toytown denizens, I am an avid reader of your informative posts. In no way was I suggesting that no one needs a financial advisor, and you are certainly correct to point out the huge variance in quality among the bunch. I was merely suggesting a particular investment platform whose efficacy to which I can attest. I am personally not familiar with the German investing platforms that have a similar function, so I cannot comment on that. I would never rely on one asset class or one investment platform unless I were starting out with very little money. I am a graduate student in finance, and I do not have any plans to become a financial advisor.

As for the direct investment in foreign stocks- one can invest in the American Depository Receipts of non-US firms via platforms similar to Moneypaper. At any rate, there may be people underweight US equities.

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ok,

 

The quote for an investor borrowed from the "www.investopedia.com". I cannot locate the exact link.

 

The market consists of Bears, bulls, Chickens and Pigs.

 

So bulls make money

bears make money

chickens also make money

 

but pigs are only there to get slaughtered.

 

So dont be a Pig in the market, in end thats what important is!

 

To know what is a Pig and how a pig invests read more in the above site.

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Thanks for the all the responses so far. Due to my limited knowledge (read 0) on the subject, some of what you've written went over my head, technical and fundamental alike. To clarify, I'm not American and am willing to take some amount of risk as above mentioned. I'm willing to try and learn as I move along. But, I have no clue on how to start with. What's the best way or easiest way? Going through a Bank? I do have a Savings account with Deutsche Bank where they have further options like db "PrivatDepot" and "maxblue - trade online like the professionals." Would that be the way to go about it?

 

Thanks again.

 

J

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Talk to a professional, maybe more than one. No one can help you gauge your true risk level without detailed information, and I venture to say that the best way to determine you true risk level is to suffer a few losses. One thing I did that might work for you, I picked equities and bonds and monitored their performance via the Wall Street Journal (use Yahoo instead) for six months, making changes as I say fit to my imaginary portfolio and keeping trading costs in mind. That helped me deal with some of the psychological issues new (and old) investors face. Good luck...

 

One thing to consider- if you are investing in euros, that currency is overvalued against others on a Purchasing Power Parity basis (see Wikipedia for an explanation), so you may want to look into shares priced in other currencies. Never let that be your primary investing criterion- I just tell you to investigate it!

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Conquistador: sounds like we are on the same wavelength here when it comes to investments. I agree that any investment in stocks and bonds is better than the typical German approach to life insurance, Bausparvertrag and savings account. Since many of the readers here at TT will obviously not have your academic background I also wanted to point out problems I see if someone with only little knowledge starts stockpicking and if the picking is than limited to one country/currency, bad surprises are bound to happen. But you and me are clear here: it all depends on good strategic asset allocation and diversification. While I agree that for an advanced investor, picking of stocks can not only be fun but very profitable, I would still recommend to anyone who starts investing in picking rather broadly invested funds in order to generate good diversification of assets, otherwise the risks are too high. But even here it is important to pick the right funds, about 2/3 are not even beating the benchmark and are thus not worthy your money. I also agree with diversification of currencies even though I see the EURO going strong for quite some more time...

DragonSlayer: starting to work with a "Musterdepot" at some of the many websites (like On Vista or Financial Times Germany or others mentioned above) may be a good idea if you are totally new. Here you can also learn to work with stop-loss orders and with setting limits for the purchasing of stocks, all valuable tools. Agree with others that you should take it simple in the approach. There are some good German journals with ample information about stocks and funds to be recommended. I would suggest Fokus Money, Cash and Finanztest. Basically, if you pick stocks who pay high dividends for a long time (track record) you can not do too wrong. Also bear in mind the suggestions to pick 15+ stocks in order to reduce risks, these you should allocate to different countries, different economic sectors and so on.

Jackal: Markowitz won a nobel price for finding out that some diversification can reduce the risks and volatility of your investments by keeping the profits steady or even improving profits (in a very, very tiny little nutshell and if you hear something spinning it is Harry in his grave because of this aweful simplification of a great man's work). Like the investment funds for Harvard or Yale, who follow his ideas, clearly show, if you want to reduce risks and generate long-term high profits, in addition to stocks you should have bonds, real estate, hedge funds, private equitiy funds and so on in your portfolio. Especially the latter are important because the show only little correlation to the development of stock exchanges and this is important to make your investments less vulnerable for sudden down-turns.

 

Two more thought for all potential first time investors out there:

1. since 1920, comparing the performance of the MSCI World with the performance of bonds, investing in stocks has always outperformed bonds etc. for investments of a duration longer than 10years, even during the great depression, WW II, Oil crisis and so on. Keep your investments steady and don't de-invest because there is a down-turn. Going permanently in and out of the markets is the best way to destroy a fortune.

2. A stock you are not prepared to hold for 10years you should not even own for 10 minutes! this quote from Kostolany, former investment guru, should be your guideline for all stock-related investment decisions. Going for the great secret tipp where it is sure that the stock will rise 500% within the next 3 month is the best way to loose your money.

 

And of course there is always the choice to do your investments with a professional... but here I am selfish again :rolleyes: just read the disclosure below. But I do not do stock picking for my clients, I work with investment funds, private equity funds, hedge funds, other forms of derivates and only for long-term investment strategies.

 

Enjoy trying out the great challenge of investing in stock markets, it is a worthwhile experience,

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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I just wanted to clarify that my advice to "pick" equities and bonds and re-wight a portfolio meant with no money invested- just a dry run, so to speak to get used to things. A person may decide they do not like investing directly in equiies, or may not feel comfortable. My argument with looking at non-euro denominated shares is the same idea behind going on a shopping trip in the US- it did not imply an expectation of a fall in the nominal value of the euro. After re-reading my last post, I thought that I may not have been clear, hence the clarification.

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Conquistador (and others): what do you think about the idea rised above by Jackal, I believe, to organize a little plattform to exchange ideas and tipps on investment? I would participate (within limits of course since I live from selling my professional knowledge) and you seem to have some excellent knowledge and ideas as well...

 

Cheerio and have a nice day

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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"Starshollow", thanks for the support.

 

Yes its a nice idea to share some ideas and discuss, rather doing it alone.

 

thanks for explaining about "Markowitz" I will read more about his theory.

 

By the way, I have a small portfolio and it consists of

 

1) Real Estate in a developing country (since I come from there)

2) Systematic investment (So I invest in mutual funds monthly HSBC Asia and DWS Deutschland)

3) I have a small capital with which I recently started playing to buy shares (I can survive even if I lose this money)

 

So, this is the starting and I will expand my portfolio more but slowly.

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Conquistador (and others): what do you think about the idea rised above by Jackal, I believe, to organize a little plattform to exchange ideas and tipps on investment? I would participate (within limits of course since I live from selling my professional knowledge) and you seem to have some excellent knowledge and ideas as well...

 

Cheerio and have a nice day

I like the idea as well- we can all benefit.

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then it is up to Jackal, I guess, to get thing organized :P

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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