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TIPS AND INFORMATION ABOUT ETFS, FUNDS AND SAVINGS PLANS FOR THE NEXT GENERATION

Tips and information about ETFs, funds and savings plans for the next generation. Parents, relatives and friends usually do everything they can to give children a good start in life. This also includes creating a financial cushion for adult life in good time. The classic piggy bank and especially the savings account have long since ceased to be the means of choice for building up reserves for children.

What are the advantages of investments for children?

If you invest money for your children, you can do so via an account or custody account in the children’s name. The money thus belongs to the child from a solely legal point of view and can be handled by the parents, but is not their own. In addition, you can apply for a non-assessment certificate from the tax office. The prerequisite for this is that the child’s total income does not exceed this limit.

Aside from the tax advantages, investing money on behalf of the children also has educational value. Because this is how children learn how to deal with money, investments, taxes and banks using a practical example.

What are the best investment options for children?

An investment for children is a long-term investment and should be made with low risk. In order for early saving to pay off, a moderate return is necessary. ETFs and funds are therefore best suited. Although these are generally subject to a higher risk, the broad diversification minimizes the risk to some extent while at the same time generating long-term returns. You not only have a free choice in terms of the investment amount and type of security, but you can also consciously decide on a specific investment motive – so you can make the investment something very special for your child.

When is the right time to start investing in children?

The sooner the better! Doesn’t matter how old the kid is, from a fiscal point of view. Parents will even, when they are young, spend money on behalf of an infant. But why not take advantage of the benefits and profit as early as possible from compound interest? Tiny sums can be converted into strong reserves before the infant hits the age of majority, and can then be used for a driver’s licence, a vacation or for preparation and study. The risks are still the same in theory, no matter when you start investing in an infant.

What happens when the child comes of age?

When the child reaches the age of majority, the entire JuniorDepot automatically becomes the property of the child. The child can then independently exclude the parents from any right of inspection and access. Regular payments do not end automatically and can either be continued by parents, relatives, acquaintances or the adult child himself. So-called “training insurances” or “child protection letters” are also appearing more and more frequently on the market and promise financial security for the next generation. Most of the time, these are pretty ordinary life or accident insurances that can be paid out under certain conditions. These products are usually only suitable for pure savings, as they tend to have little or no return.

TIPS AND INFORMATION ON GREEN FUNDS, STOCKS AND ETFS

What are sustainable investments?

Tips and information on green funds, stocks and ETFs. Conventional investments primarily consider aspects such as return, risk and liquidity – sustainability, on the other hand, plays a subordinate role or not at all. Sustainable investments close this gap by paying attention to compliance with sustainability criteria by the companies and countries concerned when selecting stocks and indices. In this way, investors can invest with a clear conscience and contribute to a better future with their investments. There are now sustainable investments in a number of areas of traditional investments. There are lots of different financial products to choose from, from funds to government bonds, ETFs (Exchange Traded Funds) and individual stocks. We show you what is important and how you can recognize and assess sustainable investments.

What are the criteria for sustainable funds and ETFs?

In the area of ​​financial investments, sustainability is a multifaceted term that is unfortunately not subject to any legal requirements. However, the ESG ( Environmental, Social, Governance) criteria, which are used to assess the sustainability of a company (or state), are widespread.

ESG stands for sustainability in three areas:

  • Environment
  • Social
  • Supervisory structures (governance)

The ESG criteria do not represent specific conditions, but serve as a guide for a sustainability assessment and are an international standard in the field of sustainable investments.

How are sustainable funds composed?

There is no single process of how closely the ESG criteria are applied when building a fund. They range from selection criteria to active influence on corporate management. So, to really understand how a sustainable fund invests and influences, you should understand the key strategies.

  • Connection criteria
  • Best-in-class approach
  • Theme fund
  • Engagement and exercise of voting rights
  • Impact Investments

FNG SUSTAINABILITY PROFILES FOR SUSTAINABLE FUNDS

Good to know : According to a study commissioned by the Federal Environment Ministry, a climate-friendly investment strategy can reduce indirectly caused (because financed) greenhouse gas emissions by up to 42%.

What can a sustainable investment achieve?

With an investment in particularly sustainable companies and countries, you support them on their way to more sustainability. Simply because your money is no longer available for all those companies and countries that do not take sustainability seriously. But above all, you are specifically reducing your impact on our planet. Because your money will be managed more sustainably from now on. It may even directly develop new clean technologies that will create a better future for all of us. You and your wealth will become an engine of the energy transition. In this way, you also indirectly reduce your personal carbon footprint and your water consumption!

How safe are sustainable investments?

Sustainable investments hold the same opportunities and risks as conventional investments. It basically depends on the type of investment, how high the earnings opportunities and the risk of loss are. When investing sustainably, you should therefore first check which form of investment corresponds to your personal needs in terms of security, profitability and liquidity. Always remember: higher return expectations usually come with higher risk.

Are the returns on sustainable investments lower?

The returns on sustainable investments are usually in line with the market average. There are even studies claiming that sustainable funds outperform traditional funds.  In principle, with a sustainable investment strategy you do not have to do without higher returns. However, the personal return on any investment always depends on the individual case.

When could an investment make sense for me?   

An investment enables you to participate in the economic success of a company . This type of investment can potentially generate higher returns than you can usually achieve on the market. On the other hand, you have to be willing to make a long-term commitment.

However, there are never higher returns without higher risk: When you invest in an investment, you must expect that you may lose all of the capital invested. Ask yourself what level of risk you basically want to take and whether you can really cope with losses. It is better to exercise caution and not to put all of your reserves on one card.

What are the dangers of an investment?  

Investments can entail considerable risks for the investor.

Total loss: If, for example, the company goes downhill, the forecast payout will be lower or will not be paid out completely. If the issuer files for bankruptcy, this may result in the partial or total loss of your investment.

Liability: Depending on the situation, it is even possible that not only the amount invested, but also your other assets are endangered – this can go as far as personal bankruptcy. This risk is accepted by investors who, for example, finance an investment with a loan.

Further risks: Other risk factors are the costs of back tax payments or liability claims for which the investor has to be responsible for such a participation. Or the company gets into trouble and investors are forced to repay dividends received.

Usage: What can the investment bring me to an investment?    

If the company is doing well economically, you as an investor will mostly benefit from distributions, a performance-related interest rate on your investment or a higher market price. At the same time, if business is positive, the value of your dispute credit also increases. This is relevant if, for example, you leave the company as a limited partner. Because this credit is then due, depending on the structure of the articles of association when leaving or in long-term installments.

Own duties: What obligations and costs do I have to face when buying an investment?         

If you participate in an investment, you undertake to actually pay in the agreed subscription amount, i.e. your contribution. Often an issue surcharge , the so-called agio , is also due. In addition, in most cases there are additional costs for the investor. They arise in connection with the acquisition, management or sale of the investment. For example, entries in the commercial register cost money, and travel and accommodation costs can be incurred for attending shareholders’ meetings.

Termination:Can I return or sell the investment at any time?   

Since investments are not securitized, such as shares, they cannot easily be sold or assigned ; as the expert says, they are not fungible. In short: there is no functioning secondary market for this type of investment. Therefore, you should view an investment as a long-term investment.

As a rule, it is also not possible to return an investment or to cancel it before the end of its term . A transfer of the investment is- if at all possible- usually linked to certain conditions, for example that the general partner in a limited partnership must consent.

Notification and publication obligations of the provider: What information does the provider have to provide me with?   

Anyone who wants to put an investment on the market is fundamentally obliged to prepare a sales prospectus and have it approved by BaFin before the start of sales . He must forward this prospectus to all interested parties for this investment during the duration of the public offer. In addition, the provider must provide a current version of the asset information sheet  in text form.

The law stipulates that the sales prospectus must contain all factual and legal information that potential investors need so that they can make an accurate judgment about the issuer of the investment and the investment itself. The aim is that you, the customer, can assess the risks associated with the investment, the prospects for a capital repayment and the returns, as well as the costs and commissions that are also associated with this investment.

Distribution channels and providers: Where can I buy investments?      

You can buy investments either directly from the provider or from savings banks , banks and other financial sales companies.

WORTH KNOWING FOR INVESTORS

Who are investments for?         

Investments are suitable for investors who want to tie up their assets over the long term . However, you should always be aware that this involves significant business risk . In the worst case, this can result in a partial or total loss of your investment or your personal bankruptcy. If you want to invest your money for a short time or if you do not want to risk any losses on your investment, investments are not suitable for you.

Taxes: Are tax aspects relevant?            

Taxes may apply to all financial investments. You should therefore consider tax considerations before deciding on an investment.

What do buy, hold and sell mean on the stock exchange?

Information And Tips For Investors. In order to understand what the buy and hold strategy is all about, the English terms buy, hold and sell must first be explained. They are usually encountered in the trading recommendations that investment houses and financial analysts make on certain stocks. Buy (“Buy”) and Sell (“Sell”) are recommendations to either buy or sell the respective security. Hold is neither a buy nor a sell recommendation – according to this recommendation, anyone who does not yet own the stock should not invest their money in it , and if you have it in your portfolio.

What is a buy and hold strategy?

The principle of the buy-and-hold strategy is already in the name: buy and keep. It’s about putting stocks or ETFs in the depot , for example , and leaving them there for several years or even decades. Buy-and-hold is one of the more passive investment strategieswith a comparatively long investment horizon. In contrast to day or swing trading, buy-and-hold does not try to make profits by exploiting short-term price fluctuations. Even in times of crisis and sharp price drops, stock market professionals advise you to stay calm when buying and holding and not to sell too quickly. Questions of timing, i.e. the right time to get in or out, play just as little role in this investment strategy as short-term market opinion.

In view of the usual volatility on the financial markets, a long investment horizon may offer the opportunity to sit out price fluctuations based on the buy-and-hold principle. It doesn’t matter whether you want to implement the buy-and-hold strategy with a one-time investment or with a savings plan. Investing in real estate based on the buy-and-hold strategy is also conceivable if you specifically buy and hold ETFs on indices that track the performance of equity funds and real estate companies

How complex is the buy and hold strategy?

One advantage is often mentioned that the buy-and-hold strategy is easy to understand and is comparatively easy to implement even by private investors. That is not fundamentally wrong. However, one should not forget that even as a buy-and-hold investor, especially when investing in individual stocks, one cannot do without having to do a thorough fundamental analysis of the most important stock figures in order to assess whether the corresponding stock is in the The stock market could be over- or undervalued. The beginners should be familiar with the basics of stocks. In addition, investors should have the right composition of the portfolio – the so-called asset allocation- consider. Despite the comparatively lower complexity, investors should not lose sight of the general risk of an investment in securities. Unpredictable events and developments can quickly lead to losses in the depot.

How much effort does the buy-and-hold strategy take?

The “support effort” is also considered to be relatively low with the buy-and-hold strategy, since you usually sit out price fluctuations instead of trying to exploit them profitably. But even that does not protect against losses or even total loss. Apart from rebalancing , which may be useful in order to restore the original composition of the portfolio, buy-and-hold can dispense with the time and stress associated with “active” strategies geared towards short-term returns.

Does the buy and hold strategy guarantee a high return?

Just waiting and ignoring the development of the companies whose shares you have in your portfolio is no guarantee of a positive return. After all, there is always the risk that the value of a share or an index will only develop negatively in the long term and that the purchase price will never be reached again and ultimately even lead to a total loss.

In principle, buy-and-hold has proven its worth with stocks or large indices. In principle, every financial investment is associated with risks up to a total loss. This cannot be shaken with the buy-and-hold strategy either.

Is the buy and hold strategy cheaper than other investment strategies?

“Back and forth empties pockets” is a frequently quoted stock market adage. In fact, frequent trading reduces returns because there are transaction costs with every purchase or sale of securities. This frequent shifting of the portfolio should by definition be omitted with buy-and-hold, so that the costs can be lower overall than with other investment strategies.

Perseverance is difficult for some investors

Another disadvantage of the buy-and-hold strategy is mainly psychological. Private investors in particular often do not have the stamina and willingness to take risks not to be unsettled by the daily ups and downs on the stock markets and to sit out inevitable price drops.

Key facts at a glance

Account Switch. If a consumer changes his payment account, he must regularly ensure that his payment obligation continues to be served properly and that payments continue to reach him. In order to keep the effort for this low, both payment service providers involved in the switch have to support consumers on request. On the one hand, this is the receiving payment service provider, who will in future manage the account and therefore receive the data, and, on the other hand, the payment service provider, who has previously managed the account and transfers the data to the new payment service provider. In order for the receiving payment service provider to initiate the statutory account switch, the consumer must issue an authorization. There are a little points that consumers and payment service providers need to consider in order for the account switch and the support of the payment service providers to go smoothly.

Who is obliged to provide legal assistance in changing accounts?

In principle, every payment service provider who offers consumers payment accounts is obliged to help with changing accounts.

Both payment service providers involved in the change must provide support, the receiving payment service provider on the one hand – i.e. the payment service provider who will in future manage the account and therefore receive the data – and the transferring payment service provider on the other hand – i.e. the payment service provider who has previously managed the account and the data to the new payment service provider transmits. The receiving payment service provider initiates the account switch at the request of the consumer.

What should I  do to make use of the legislative switch account assistance?

You must be a customer and allow the payment processing provider to provide the contractual transfer account assistance. Authorization for adjustments to the contractual account aid must be rendered in writing. If you would like to take advantage of the legislative switching assistance account, please use the one form offered. The receiving payment service provider shall execute an account transfer at the behest of the user. So, you can get the form from the payment processing provider for whom you would like to use the account transfer help or on their website. Use of the form is not necessary, but it simplifies the process and ensures that you consider all points.

Which services are covered by the statutory account switch assistance?

The authorization of the consumer defines which specific services the payment service providers provide within the specified framework.

The payment service provider with whom the account is to be managed in the future requests the following information from the previous payment service provider within two business days based on the authorization:

  • a list of the current standing orders and the details available from the conversion of direct debit mandates to the payment processing provider that is passed when the accounts are switched;
  • the available information on incoming transfers and direct debits initiated by the payee on the consumer’s payment account in the previous 13 months.

The new payment service provider also informs the previous payment service provider of the times specified in the authorization at which payments are no longer to be processed via the existing account, the remaining balance is to be transferred and the previous account is to be closed. The previous payment service provider must provide the consumer and the new payment service provider with the requested information within five business days. In addition, from the point in time specified by the consumer, he no longer has to process payments (standing orders / direct debits) , transfer the remaining balance to the new account and close the account.

The new payment service provider must then provide the following services within a further five business days after receiving the lists and information, insofar as the authorization provides for this:

  • set up the desired standing orders and execute them from the date specified in the authorization,
  •  Accept direct debits from the time indicated in the authorization;
  • the payers named in the authorization who make transfers to the previous payment account, provide the details of the new payment account details and send the payers a copy of the relevant authorization. If he does not have all the information he needs for this notification, he must ask the consumer or the previous payment service provider to provide him with the missing information,
  • the payees named in the authorization who debit amounts of money from the previous payment account in the direct debit procedure, the details of the new payment account details and the date specified in the authorization from which direct debits are to be debited from this payment account, and the payees a copy of the related authorization to transfer. If he does not have all the information he needs for this notification, he must ask you or the previous payment service provider to provide him with the missing information.

The new payment service provider must also inform the consumer about his rights, as far as relevant,

• Restrict direct debits to a certain sum or periodicity, or both;

• Advise him, if the direct debit mandate does not allow for the right to be reimbursed in compliance with the payment process, to review each direct debit on the basis of the specifics of the mandate and to check if the volume and frequency of the direct debit submitted conform to the agreements of the mandate before debiting the payment account;

• Ban any direct debits linked to your payment account or all direct debits initiated by one or more named payers, or allow only direct debits initiated by one or more named payers.

What options do I have if one of the payment service providers breaches its obligations?

The payment service providers involved are liable to you for damage resulting from a breach of their duty as joint and several debtors in accordance with the general provisions.

Claims for damages can include, for example, interest on arrears in the late execution of standing orders or the costs of a direct debit return. You can assert such claims for damages before the civil courts.

Can I incur costs as part of the statutory account switch assistance?

A payment service provider only has a claim for payment against you for the fulfillment of its obligations if this has been agreed between you and the payment service provider. This fee must be reasonable and based on the actual costs of the payment service provider. In case of doubt, which remuneration is to be regarded as appropriate can only be checked in court.

A fee may not be charged for access to your personal data in connection with existing standing orders and direct debits that are available with the payment service provider in question, for sending information on direct debit clients and lists of existing standing orders, and for closing the payment account held by the transferring payment service provider of the consumer.

What is a dividend?

Dividends represent a portion of the net profit that stock corporations pay out to shareholders as part of the profit distribution. There are several types of stock dividends:

Stock dividend: The term is derived from the English term “stock” for stock. In the case of stock dividends, shareholders do not receive a cash payment, but rather additional company shares.

Cash dividend: In this case, shareholders receive a direct, pro-rata distribution of profits. The cash amount is determined beforehand at the general meeting.

Dividend in kind: Shareholders can, for example, receive shares from subsidiaries or “real” material assets, such as products manufactured by the company.

In general, dividends are a kind of bonus for shareholders, as they provide capital to the corporation. The difference to fixed-income investments: dividends are usually only paid if the company has made a profit. And even then, stock corporations usually only pay out part of the profit to their shareholders.

GOOD TO KNOW: Other forms of company,  pass on profit shares to the co-owners. Here, however, we do not speak of dividends, but of a profit distribution.

DIVIDEND PAYMENT

The dividend for the past financial year will be decided on the day of the general meeting. With the resolution of the general meeting, the value of the share is reduced by the dividend amount. One often speaks of the dividend discount. When the price is quoted on the next day, this discount is indicated by the addition “Ex dividend”. Shareholders receive the cash dividend directly by transferring them to their own account. However, after the annual general meeting, it can take several weeks or even months for shareholders to actually receive the amounts.

Many investors are guided by particularly high dividends when buying shares. But stock market professionals often interpret a high dividend yield as a warning sign. Because when there are economic problems, the share price drops. However, this also increases the dividend yield and attracts investors with a supposedly attractive value.

GOOD TO KNOW: the dividend yield cannot be compared with interest investments. Due to the several factors play a role in the return. For example, dividend payments can be suspended in the event of economic difficulties. In addition, the share price can also fluctuate, which in turn affects the dividend yield. Interest investments, on the other hand, are more stable because investors receive a fixed rate of interest for a fixed term. Due to the low interest rate policy, however, only low interest rates are offered for investment capital, which is why more and more investors are relying on the dividend yield.

DIVIDEND YIELD RISKS

A high dividend yield is only partially meaningful. Because there can be several reasons for increasing returns – and not all are positive.

  • The dividend rises sharply in percentage terms, the share price a little less.
  • The dividend rises, the share price remains constant.
  • The dividend stagnates, but the share price is falling.
  • The dividend goes down, but the stock price goes down even more.

WHAT DO DIVIDEND INVESTORS LOOK OUT FOR?

For many investors, looking at the current dividend amount and dividend yield is not a sufficient selection criterion. Many investors even see unusually high returns of over 6% as a warning sign. Because they are often based on extraordinary, mostly negative circumstances. Exchange professionals therefore pay attention to other criteria in addition to the return. The return first shows what percentage of the company’s profit is distributed as dividends. If all profits go into dividends, there is nothing left to invest in growth. The result: increasing corporate profits (and distributions) can hardly be expected in the future.

Depending on the industry, professionals prefer payout rates of around 50%. These distribution rates should be kept constant by the company over longer periods of time. The business development and profit development of companies must allow an attractive stock dividend. Solid balance sheets and established business models are essential for this. Companies should achieve good profit margins even in economic downturns. Therefore, market leadership and pricing power of companies are important criteria for dividend-oriented investors. More important to investors than the absolute amount of the dividend is the consistency with which it is paid. The scrip dividend should never fail, at least be constant and, if possible, even increase regularly. Companies that meet these conditions are called dividend aristocrats in stock market jargon.

INVESTMENTS BY FUND OR ETF?

A more detailed analysis of the dividend strategy shows that a mechanical selection of stocks according to the dividend yield is not enough for investment success. This is why many shareholders forego the individual security selection and rely on dividend ETFs or dividend funds. Passively managed ETFs on dividend indices, however, usually have one disadvantage: They mechanically rely on the stocks with the highest dividend yield. In the past, however, they could not avoid falling prices in high-dividend but weak financial, telecom or energy stocks. Active fund managers have it easier. You can increasingly rely on profitable consumer stocks, stable corporations and also on profitable technology stocks that have significantly increased their dividends in recent years and whose prices have risen at the same time. As a rule, however, these types of funds are also more expensive. Funds with a dividend focus have now been launched for almost all regions of the world.

High Risk Investments, A hedge or garden enclosure is referred to in English as a “hedge”. The verb “to hedge” also means “to hedge” in a figurative sense. Nevertheless, nothing would be more wrong than to assume that hedge funds are primarily intended to provide protection – the opposite is often the case. In fact, hedge funds are highly speculative and therefore risky for investors. In this article we explain what hedge funds are.

Hedge funds are a special type of investment fund that specifically pursue speculative investment strategies in order to achieve above-average profits that are well beyond the market average. The risk diversification that is otherwise common with funds takes a back seat. For the targeted investment success, financial instruments, securities and investments are used that are subject to more or less strong price or value fluctuations, such as stocks, currencies, raw materials or precious metals and related derivatives .

Leverage investments are a core principle of hedge funds in order to increase the potential for profit opportunities. Leverage can be achieved, among other things, with derivatives or with loan financing of investments. Another technique used by hedge funds is short sales – that is, highly speculative and risky sales of assets that are not owned by the fund at the time of the transaction and should only be acquired or closed out later in order to generate potential profit.

GOOD TO KNOW: “Hedging” basically means that a market participant protects himself against negative price developments.

In the context of the general definition of hedge funds, there is a large variety of funds with different assets and strategies. We will present the most important strategies in the course of the article. What they all have in common is the goal of above-average performance. Hedge funds do not measure themselves by market success. Or to put it another way: You are not pursuing a benchmark approach, but want an “absolute return”, i.e. the largest possible profit that is independent of the market.

Why is it called a hedge fund?

On the one hand, hedge funds typically use derivatives, which can also be used for hedging purposes. On the other hand, the funds themselves operate to a limited extent as part of their business. But that does not change their speculative character.

GOOD TO KNOW: There are currently more than 3,000 hedge funds active worldwide with an estimated investment volume of over three trillion dollars.

Hedge Funds And “Normal” Mutual Funds – An Overview Of The Differences

Hedge funds: Limited regulation only. “Absolute return” aimed for (= maximum possible profit).         There are hardly any restrictions on investment policy, and fund managers are largely free to make decisions. Risk diversification is not the focus. Leverage through borrowing (outside capital) possible. Hedge funds use short sales. Opportunities and risks largely determined by the “quality” of the fund manager and the skill of the fund management, comparatively low market influences. Usually construction like closed-end mutual funds. High equity stakes required. Greatly limited availability, as – with a few exceptions – the shares are not listed on the stock exchange

“Normal” investment funds: Strong regulation and financial supervision. Aiming for a better result than the benchmark for active funds, only index replication for passive funds. The investment policy is determined by the purpose of the fund, as shown in the sales prospectus. Principle of risk diversification. Borrowing is only possible within narrow limits, leverage is in fact excluded. No short sales. In terms of performance, the development of the relevant market plays an important role because of the benchmark orientation. Open-ended investment funds: small units can be purchased and returned at any time or traded on the stock exchange.

What are fund of hedge funds?

A hedge fund is that invests in various hedge funds. In this sense, it acts as a “Fund Of Funds”. The subfunds or target funds can pursue similar, complementary or different hedge fund strategies. A maximum of 20% of the fund of funds assets may be invested in a single hedge fund. That should guarantee a certain minimum spread.

AI in investments The topic of AI (artificial intelligence) or AI (artificial intelligence) is on everyone’s lips, and yet consumers and investors usually have no concrete idea of ​​it. In fact, our everyday life is already characterized by numerous intelligent systems such as voice recognition in smartphones, smart homes or translation programs and security systems. Artificial intelligence is now also used in financial investments. We show you how AI works, where it is actually used and what limits it (still) has. Creating an artificial intelligence, i.e. developing a machine that thinks and acts like a human, has fascinated researchers for centuries. In simple terms, artificial intelligence is computer programs that develop themselves and can think, learn and act in a similar way to humans.

Today’s AI computer systems belong to the so-called “weak AI”. This means that this form of artificial intelligence is able to process huge amounts of data, so-called “big data” with the help of machine learning, and to solve certain problems. But compared to the human brain, this AI does not gain a deeper understanding of problem solving. She is reactive and inflexible.

A so-called “strong AI” would be able to think logically like humans, make decisions on their own initiative, communicate naturally and combine all of these abilities in order to achieve a goal. To date, however, it has not yet been possible to develop a strong artificial intelligence.

PUT SIMPLY: As of today, AI is very good at recognizing patterns in very large data sets and evaluating them. Typical areas of application for AI are therefore self-driving cars, speech recognition or image recognition and virtual assistants. For use in the financial sector, the ability to recognize patterns in large amounts of data is also an advantage.

In summary, AI is:

  • A digital system that uses algorithms to analyze patterns and calculate probabilities.
  • A self-learning computer system based on fixed databases or self-created data. Through self-learning, it improves its algorithms and learns to understand data better. Learning can be networked with various AIs. In this way, computing power can be increased and the ability to interpret data improved.

THIS IS HOW ARTIFICIAL INTELLIGENCE WORKS

Artificial intelligence requires, on the one hand, a lot of data and, on the other hand, rules as to how it should handle this data. These rules are called algorithms. An AI therefore always starts with rules that programmers have created. Only with increasing data volume can it derive and develop its own rules in a self-learning manner. To this day, a lot of preparatory work by people is necessary when using artificial intelligence. Even sophisticated systems still require more than 90 percent human work.

In the financial world, new data is produced every second. But it is difficult for an AI to assign this data. Because there are no general standards for the respective data sets. For example, an AI must first learn which key figures are really relevant in which company, in which industry or at which moment. If the AI ​​learns these relationships incorrectly, it can also misinterpret data by recognizing meaningless relationships. The use of artificial intelligence for financial investments is therefore linked to complex preparatory work by financial experts, precisely because the world of numbers in the financial sector is constantly confronted with changing conditions.

WHERE IS ARTIFICIAL INTELLIGENCE ALREADY BEING USED IN THE FINANCIAL INDUSTRY?

AI is already used in various forms in the financial sector.

Automation of processes: Financial institutions use strongly rule-based AI, for example for credit checks or for transactions in capital markets. AI helps companies map processes faster and more cost-effectively.

Big data processing: AI analyzes stock prices, stock news or analyst reports for banks. The algorithms can automatically process and prepare both structured and unstructured data.

Recognition of patterns: With the help of so-called “neural networks” and machine learning, AI can record unusual account movements, for example. It is also possible to predict course developments or customer activities. Pattern recognition is particularly useful for developments on the capital market that can be predicted on the basis of rules or conditions through data analysis. AI also plays a central role on the stock market in so-called high-frequency trading. Artificial intelligence buys or sells stocks within a fraction of a second.

What Is Share With Questions. Companies usually issue shares in the form of shares in order to acquire equity, e.g. for new investments. The money is given to the stock corporation for an indefinite period of time, i.e. not paid back. With their shares, investors participate in the company’s economic development: This means that everyone bears losses up to the amount of their investment. If the company goes bankrupt, the shares can become worthless. If a company makes a profit, the general meeting can decide to distribute part of the profit to investors as dividends.

If you have made a profit from the selling of your shares or earned dividends from public corporations, they are taxable. There are costs involved with the purchase, holding and disposal of shares.

Possible goals: When could investing in stocks make sense for me?       

If an investor wants to participate directly in the means of production with his money, he buys into a company. So he acquires an entrepreneurial stake. For small investors, it is a good idea to participate in a company’s economic development by buying shares. However, they are also exposed to the risks of business development.

Risks: What are the dangers of investing in stocks?          

The value of stocks fluctuates. Stock prices do not necessarily move in line with a company’s current earnings. The economic development of the company expected by market participants can also be reflected in them, both positively and negatively. The prices of shares also depend on other influences that have little to do with the company itself. For example, the overall economic situation or the political situation in a country can have an impact on the course. In the event of poor corporate or macroeconomic development, the share price can fall. If the company goes bankrupt, the stock can ultimately become worthless. The money invested would then be lost. Therefore it makes sense to

Retail investors shouldn’t just check the prices of the past few months before buying a particular stock. Until investing, do as much homework as possible about the venture. And decide rationally, not on the basis of supposedly hot tips, where to spend your money and how much.

Use: What can I get from investing in stocks?       

When you buy a stock, you are entering into an entrepreneurial stake. If the company makes a profit, you as a shareholder can participate in part of the profit through a dividend payment. If the market also assesses the company’s future prospects positively, the demand for the shares and thus their price may increase. This benefits you at the moment when you can sell your paper again at a better price than you paid yourself at the time.

Own duties: What are my obligations and costs when buying a share?  

In order to buy, hold and sell a share, you need a so-called deposit account. A custody account also causes running costs.

You can save money here if you find out about the fees and costs of banks in advance. These fees and costs are listed in the so-called list of prices and services. This also contains information on the so-called transaction costs, i.e. the costs and fees that are generally incurred when buying or selling a share. You should therefore check the price and service specifications carefully and, if necessary, compare different offers.

If you have decided to buy or sell a share, your bank / advisor is obliged to provide you with all costs in connection with the purchase or sale of your share in good time in advance by means of so-called ex-ante cost information – independently whether you buy or sell the stock without advice or with advice.

NOTE: As a purchaser, you are liable for working out if the price of the share is warranted. This could be challenging for institutional investors. Therefore, you can first get acquainted with the respective business and this sort of investing before you plan to invest in stocks.

Exchange Traded Funds. Anyone who builds up a fortune today but does not want to pay high fees will soon come across the option of Exchange Traded Funds, or ETFs for short . They are public funds that are traded on the stock exchange.

Description

ETFs follow a special investment strategy. These indices themselves reflect the performance of the assets that make up them. Such funds are therefore also referred to as passive management: Because the manager does not make his own decisions on how the fund assets are invested in detail. Rather, it is based exclusively on how the value of the index it modeled develops. In contrast to this, in the case of an actively managed fund, the manager decides at his own discretion about the “right mix”, ie how he composes the portfolio, although he must remain within the scope of the stated investment objectives and policy. In addition, an ETF is not only valued daily by the manager, but also continuously by the market – in accordance with the price development.

If you want to invest in ETF shares, you can usually buy them on the stock exchange without having to pay front-end loads. In this case, the provider of ETFs no individual shares out, but usually blocks of shares. These are then traded by so-called market makers.

Possible goals: When could exchange traded funds be useful for me?    

ETFs offer the investor the opportunity to invest in an index without actually having to buy the assets contained therein, e.g. shares, individually. With index funds you can invest relatively easily, cheaply and broadly in stocks. Accordingly, it is a flexible form of investment: You can buy and sell your fund units at any time.

Risks: What are the dangers of investing in Exchange Traded Funds?    

Market Risk: The value of ETFs is directly dependent on how the index was developed, which the ETF is used as the base value. The tracked index is in turn significantly influenced by how the respective assets that it summarizes develop. Stock markets, for example, can fluctuate enormously and the respective index takes these fluctuations accordingly. Always be aware that ETFs also involve risks!

Costs: With passive management of the ETF , the manager is strictly bound to replicate the respective index. He cannot therefore react actively when the market changes. This means that he cannot try to counteract possible risks by making certain investment decisions.

On the other hand, this means that a passively managed ETF generally incurs fewer costs than an actively managed fund. Here the manager tries to outperform the respective index. And this active management is an achievement that you as an investor have to pay for!

Use: What can investment in Exchange Traded Funds do for me?          

The replication of indices gives the investor the opportunity to participate in increases in value through his fund units. Since indices are average values ​​from a certain asset class, the return does not depend on how an individual asset, e.g. the share of a single company, develops. That on a ETF it is easier to losses by the values of other fixed assets that asset class balancenamely the shares of other companies. However, this model of risk limitation only works if the entire group of assets is not affected by a downturn, the development of which the index tracks.

Own duties: What are my obligations and costs when purchasing Exchange Traded Funds ?

Since ETFs only display indices, i.e. the fund is only passively managed, the fees incurred are usually lower than with actively managed funds.

Termination:   Can I return or sell Exchange Traded Funds at any time? 

You can resell your shares in an ETF at any time on the stock exchange. You usually also have the alternative of returning your units to the fund.

What information does the provider have to provide me with? 

Anyone who wants to offer a mutual fund must prepare a sales prospectus. This contains all economic and legal details on the relevant fund. In addition, the key investor information, which summarizes the information in the sales prospectus, must be prepared. In addition, the provider is legally obliged to make the current version available to the public on its website. The sales prospectus, main investment facts and most recently released annual and semi-annual reports must be made available to investors before investing in the ETF.

For example, if you seek advice from a bank, savings bank or financial services institution, they must provide you with all of this information. In addition, a record of this consultation must then be drawn up and given to you.

Where can I buy Exchange Traded Funds? 

Shares in ETFs are traded on the stock exchange. You can buy ETFs through your bank, savings bank, or other financial services institution, as well as through financial investment brokers.

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