The ABCs of investing: investment rules and strategies

Do you want to secure yourself financially for the future and start growing your wealth? Or do you have other concrete goals, such as a trip around the world, or are you planning to make the move into self-employment? Perhaps your children would like to study full-time and are dependent on your financial support?

Each of us has different plans and associated concrete goals when investing.
Experts distinguish between security, liquidity, i.e., the flow of money, and returns, which can also be understood as profit. No matter what goal suits your wishes, investing money is never without risk. However, investments offer higher earnings potential than simply saving without earning significant interest.

Investments have another advantage: protection against inflation. The “economy-driven increase in the prices of goods and services” reduces the purchasing power of your money over time. This gradual depreciation cannot be sufficiently compensated for if you leave your assets exclusively in a savings account.

To build wealth, it’s crucial that you decide to invest in the first place and get started as early as possible. The earlier you start, the more you’ll benefit from the compound interest effect. This is because interest is paid not just on your investment capital but on the interest and dividends as well. Capital grows by the “capitalized interest rate” – and thus increases exponentially.

But before you start investing, you should determine your investor profile and create a plan tailored to you. With every new phase of life, your needs change and with them your personal and financial requirements.

A financial plan helps you to set out your overall situation. The more detailed and forward-looking your planning is, the less likely you are to make the wrong decisions.

To create a solid basis for decision-making, you should consider the following:

Financial situation

How much money do I need for my current and variable expenses?

How much reserve can and should I build up to handle emergencies?

Pension situation

Do my pension payments from OASI (pillar 1), the pension fund (pillar 2) and the restricted and unrestricted pension (pillar 3) cover at least 80 percent of my last earned income? Will I be financially secure after retirement? If not, how can I generate additional income with investments and save specifically for old age?

Liquidity situation

Only when your needs for liquidity and pension provision are covered can you see how many spare funds are available to you for systematic asset preservation or accumulation.

Goals

What return (expectation) do I want to achieve by when (time horizon)?

Investors are more likely to be successful if they adhere to proven investment rules. Even if not everyone has the same goal, there are some general rules. Here are five of the most important. 

Investment funds combine several benefits. Investors enjoy a high level of investor protection thanks to strict regulations. You can usually be sure that the funds do not include illegal or dubious companies.
Investment funds are more cost-efficient than comparable individual investments and they are also diversified, i.e., they invest in a large number of securities. Last but not least, investment funds guarantee the necessary liquidity. This means that investment funds are legally obliged to repay shares.

Investment strategy funds are very popular with investors because they offer two clear advantages. On the one hand, they are globally oriented and broadly diversified. On the other, professional fund managers implement the investment strategy you have chosen.

So you can continue to pursue your investment goals with just one investment solution without having to worry about making investment decisions yourself. This makes funds much more user-friendly than, for example, stocks, which require more advanced knowledge and a lot of willingness to trade.

If you know a lot about financial events and understand the economic and geopolitical contexts associated with them, you have a better chance of success when investing.
When investing, it’s important that you understand local conditions and follow global events. This is the only way you can identify possible influences on the global financial markets and make logical investment decisions.

However, it’s often difficult for investors to obtain the right information at the right moment. After all, keeping track of things and always keeping the necessary calm is a challenge. Last but not least, familiarity with asset classes and instruments is crucial to investment success.

In doing so, you can transfer responsibility or rather rely on the experience and knowledge of investment specialists. Experts offer you investment solutions that fit your wishes and needs, for example in terms of sustainability.

Regardless of whether your goal is financial security, profitability or liquidity – investing money is worthwhile. It’s crucial to follow the most important investment rules, to precisely determine your own investor profile and to define your investment strategy at the same time.

If you want to increase your chances of successfully managing your assets, you can rely on the expertise and knowledge of investment specialists. Because if you are experienced and well informed, you will be able to grow your money.