How do I build up my wealth?

Regardless of whether it was earned, given or inherited - sometimes there is still money left in the account at the end of the month. If that's the case for you: congratulations! You should then think about a medium-term strategy for sustainable wealth accumulation that goes beyond a daily allowance account at the savings bank. With a good strategy, your assets will build up slowly and ultimately give you more "play money" for your own consumer wishes.

Why do we save money?

We do this to create a financial cushion, minimize financial risks, cover unforeseen costs and make long-term provisions for retirement; but also to make bigger life dreams come true.

Which is better, saving or investing?

Saving is the prerequisite for investing. The saver reduces regular expenditure. The investor tries to increase part of the funds thus gained. A call money account is ideal for spontaneous and short-term savings. Money that is not needed in the foreseeable future can be invested in different risk classes in the medium or long term.

How do you know how much money you have left and how do you manage it? To begin with, all you need is a pen and paper. Only those who have an overview of their income and expenditure can make confident decisions about their money. Money is becoming increasingly abstract with cell phone and card payments. Pen and paper bring spending back to the real, analog world. We often trick ourselves when balancing expenses in our heads: People often unconsciously keep a separate mental account for fun or luxury. But this often results in a kind of "balance sheet fraud in the mind ". The available money is debited internally several times, once for the rent, once at the supermarket, once for an expensive restaurant evening. Writing down expenses and clear budgeting / allocation of funds for the future helps to counteract this. This helps enormously to keep the money together.

50/30/20-Rule of thumb

The truism "earn more than you spend" applies. The 50/30/20 rule helps here: if you use 50 percent of your income for essentials such as rent and food and set aside 20 percent for debt repayment or savings, the remaining 30 percent can be spent on personal consumption with pleasure and without a guilty conscience. It is therefore advisable to set aside at least 10 or 20 percent of your net income each month.

Investing for the long and medium term

For long-term investments of at least 10 years, shares, ETFs, bonds and precious metals are recommended. Longer terms are important in order to ride out price fluctuations on the capital market. Advantages of shares and ETFs over bonds: These forms of investment bring higher returns, but even with long maturities, a suitable exit time must be chosen. You should therefore be flexible when it comes to liquidating or selling investments. There is no point in selling stocks during a crisis, as you often forgo a large part of the previous price return. History shows that the recovery is often all the stronger after falling prices.

Risky vs. safe asset classes

A smart approach is to shift your portfolio from riskier to safer asset classes over a longer investment term. Cryptocurrencies are among the most speculative and volatile asset classes and "promise" high returns but also the highest losses if you get in or out at the wrong time. At the end of the current market cycle, experience shows that only a few (possibly 10%) of the numerous cryptocurrencies and decentralized projects will remain. Therefore, especially in a new market with a technology that entails far-reaching changes, one should only invest cautiously with prior intensive research and the collection of one's own experience.

Eight tips for the selection and composition of long-term investments

Broad diversification

Experts recommend a basket of different investments, such as fixed-term deposits, bonds, shares, ETFs, cryptos and precious metals. This minimizes the risk if an individual investment goes down. In addition, you should always keep a certain amount of cash in order to be able to use it profitably when investment opportunities arise, for example after the bottom of a crash.

Large fund volumes / ETF

In the case of small funds with a volume of less than EUR 100 million, there is a greater risk that they will be closed and the fund units sold or replaced by new ones. This causes unnecessary costs. In addition, the annual costs are usually proportionately higher for small funds. It is therefore advisable to purchase low-cost ETFs. These can often also be saved via a savings plan, which starts at just EUR 50 per month.

Accumulating funds

The advantage of reinvesting investments is that the income is automatically invested in new shares. This allows investors to benefit from the interest effect rather than receiving a dividend at the end of the year.

Growth share

Investments that promise high growth over a certain period of time are promising. The movements can range from moderate to rapid, but it is important that they are continuous, such as American tech stocks over the last 10-15 years. These companies (Apple, Google, Microsoft and, more recently, nVidia) have managed to reinvent themselves and entire markets time and again and set or initiate trends themselves. To keep a graphical overview of the waves of growth, it helps to use WAVEALERT .

Trends & game changers

Whether megatrends (artificial intelligence (AI), crypto industry / decentralized networks) or social trends such as e-commerce or the medical sector (vaccines). There are always so-called gamechangers in many sectors. Investors should focus on sectors and topics to which they may already have links and experience from their professional environment in order to better understand the developments of the companies active in these sectors.

Time

The good thing is: you don't need to do (almost) anything except buy the investments, observe them and hold them for the long term. If a dividend is paid out and directly reinvested in the share, the interest and compound interest effect comes into play in addition to the pure price gain.

Dollar cost average / ETF savings plan

Established strategies such as "dollar-cost-averaging" can help to balance out price volatility: this involves making regular purchases in small tranches over a longer period of time, regardless of the price trend. Such savings plans are supported by many portfolio providers. Individual shares, ETFs or even cryptocurrencies can now be saved on a regular basis. In this way, downward and upward price fluctuations can be balanced out.

Luck or skill - the perfect exit

There is no such thing as the perfect exit. Keep your nerve and don't fall victim to the casino effect: get out in good time as soon as you are unsure whether a trend will continue or reverse. Even if you are in the red with your investment, it is sometimes advisable to get out first and stand on the sidelines in order to reduce further losses. This may hurt at first, but if you are still convinced of the stock despite everything, you can re-enter the stock with the capital you have saved after the bottom has been reached and profit directly from the rising price.