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How Could You Find The Right Asset Class?

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How Could You Find The Right Asset Class? First, in first, asset classes are the different groups of financial instruments. A group has similar economic characteristics and the financial instruments it contains, therefore, behave similarly on the market. The same three evaluation criteria are in the foreground for all asset classes: security, return and availability.

How Could You Find The Right Asset Class?


The Comparison: Which Asset Classes Are There?


There are a variety of asset classes that can be used by private investors for financial investments. A financial investment comparison is therefore essential for the selection of the suitable investment vehicle. The most important asset classes are presented below.


Asset Class 1: Classic Banking Products


The best-known investment products are available from banks, savings banks and insurance companies. They are divided into the asset classes “savings account”, “money market” and “insurance”. The classic among the investment forms is the savings account. The savings account or savings account is very safe, but at the same time offers such low-interest rates that the investment is not worthwhile at all. Due to the annually rising prices – inflation – your money is devalued here bit by bit. The bottom line is that this can even lead to losses.


The money market is a market for short-term loans and money market paper. It fulfils a liquidity-balancing function so that credit institutions can spontaneously procure liquid funds at low-interest rates or invest excess liquidity. The money market is the lowest risk and at the same time, the best available asset class. On the other hand, there is not much room for growth in terms of interest rates. In addition to money market funds, money market investments include, for example:


Daily money:

The alternative to the savings book. The overnight cash is an account with slightly higher interest rates than the savings account, the credit of which you can dispose of daily, but whose interest rates can also change frequently. It is one of the very safe forms of investment. Besides, you have no notice periods, and you can choose the account independently of your house bank, which currently offers the best interest rates and possibly a new customer bonus.

Fixed-term deposit


Fixed-term deposits are a good option for short to medium-term investments. Fixed-term deposits are very similar to overnight money, except that you invest the money there for a previously agreed term at a fixed interest rate. You cannot withdraw your money within this period. However, you get a little more interest in this than with overnight funds.

Asset Class 2: Securities

The opposite of the money market already described is the capital market. For example, securities are traded there, which include the following types of investment:

Shares:


Shares means, ownership shares in a company, i.e. a company. There are stock corporations that issue these shares to raise equity and, for example, to make new investments. If the company then makes a profit, this can lead to share price increases on the one hand and profit distributions (dividends) on the other. In this case, shareholders benefit twice.
Shares are divided into ordinary shares and preferred shares. The buyer of an expected percentage has full shareholder rights and is therefore entitled to vote at the general meetings of the stock corporation.
He can have a say in corporate policy. Preference shares, on the other hand, do entitle the holder to attend general meetings but do not convey voting rights. Higher dividend payments usually offset this lack of decision-making power. Equities are considered to be the form of investment with the most significant prospect of returns. Historically, the average real return on the global stock market has been around 7%.

Bonds:


Bonds are lending money against interest, and also they count as pensions. These are called bonds and represent securities, the purchase of which promises the repayment of a loaned amount of money as well as the payment of an agreed interest rate. The best-known form is corporate bonds. In contrast to shares, which are equity, this is debt. The buyer of a bond does not receive a stake in the company, but only becomes a creditor of the issuer of the bond.
There are different types of bonds: corporate bonds, government bonds etc. Bond prices tend to rise when the stock market is weak. The reason for this is that in these times, many investors flee their capital to bonds that are considered safer. Another reason is political influence: governments or the European Central Bank can buy bonds in large quantities, which drives up the corresponding prices.

Fund:

More potential returns and risk diversification than with stocks. In the case of funds, a corresponding fund company collects the investors’ money and invests various investment products such as stocks or bonds. Active managers usually control the funds. The advantage is that they do the work for investors. The disadvantage is that funds, therefore, have high management fees and other costs. For beginners, however, they are a better option than buying stocks individually.

ETFs:

The cheaper alternative to actively managed funds. ETFs (Exchange Traded Funds) also fund, but they track and therefore do not have to be actively managed. Hence, an ETF has much lower fees. Besides, the risk is automatically spread across different stocks.

Certificates:

Certificates are only for professionals. A certificate is a derivative financial instrument. Derivative means “created by derivation”. That means, the investor participates in the development of the underlying with the certificate, i.e. the development of the certificate and the investor’s income are derived from it.
The underlying is also called the underlying and can be a security, basket of shares, index or other financial product. Certificates are bearer bonds, so unlike with investment funds, investors must be aware of the risk that the issuer could become insolvent. Certificates allow the investor to invest in practically anything and in almost every imaginable way.

Asset Class 3: Real Estate


Real estate is an increasingly popular asset class. You can also invest in very different ways here. The main types of real estate investment are presented below.

Direct Acquisition:

Refers to the direct, i.e. physical, purchase of a property to rent or resell it in the event of a possible increase in value. There are various strategies and opportunities for investments here. However, this form of investment often requires a lot of time and personal work (e.g. management and administration) in addition to in-depth knowledge of real estate.

Real Estate Shares:

Real estate shares represent an alternative to the relatively expensive direct acquisition. Here the investor does not have to take on the management of the property himself but instead buys shares in companies that manage the properties. Also, this includes other stock corporations that do not own any real estate but only operate in the real estate industry. Since these are ultimately ordinary shares, the same risks apply as when buying other individual shares.

Real Estate Funds:

Open-ended real estate funds have similar advantages as ordinary funds. You split the risk across several properties. The investor can also sell his shares again at any time, so he is very liquid. With closed real estate funds, on the other hand, you can no longer access your money from the time you purchase the fund shares. In addition, there are often only a few specific properties in which one invests – therefore, risk diversification works rather poorly. Closed real estate funds are rather unsuitable for private investors.

Real Estate Crowdinvesting:

A relatively new trend towards investing in real estate is a so-called real estate crowd-investing. Private investors can already invest small amounts together in large real estate projects and thus achieve relatively high returns. The interest rates are often between 5.0% and 7.5% per year. Another advantage in addition to the high-interest rates is the short terms of the crowd investments. Please see the alternative investments section below for more information.

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