The Basics Of Investing (Part2)

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1. Be sceptical of salespeople

The Basics Of Investing. Bank advisors and other financial intermediaries are usually paid on a commission basis. So you are a seller. You must therefore assume that these advisors will only recommend products to you that the sellers make ample money on. Of course, this also applies to the savings bank advisor, even if he does not earn anything personally from the sale. Savings banks and Volksbanks also sell in-house products or products from third parties with appropriate sales cooperation and set sales targets for their employees. What can you do about it? Nothing. You can ask advice from other competitors who are also sellers and who may then suggest additional products to you, but that doesn’t exactly make it easier to make a decision. If you want to structure your own opinion, you can fall back on independent sources, for example, test reports from Stiftung Warentest and advice from consumer organizations.

2. Take a critical look at past performance

We know it: To sell you a product, you will be presented with beautiful graphics with upward curves. You are told that this has been the development so far, that it is a top grade paper with which you can practically only win.

ATTENTION! No expert in the world can predict how security will develop in the future. It has long been a well-documented truism among researchers that the forecasts of experts and analysts are minimum as often wrong as they are correct.

If someone says the opposite in the consultation, then you should get up and leave immediately. Such forecasts are only ever used for the sale of products and the constant switching of securities. They have nothing to do with serious advice, which should always value appropriate risk diversification.

3. Minimize costs and commissions

Costs and commissions reduce the return you can get from an investment. The costs are individual, and you always have to pay them, while interest income and favourable price developments are often uncertain.

Different costs arise depending on the investment product. You can find an overview of different product types in our guide Avoid unnecessarily high costs for financial products. In principle, you can negotiate commissions (also: donations). By the way, funds and other products still incur fees after they have been sold. You can find the annual fees in the so-called key investor information sheet (also: key information sheet, product information)under “Running costs”. Because of a sales follow-up commission, which the fund company pays to the bank, your bank will automatically continue to earn from you even after the sales pitch. In the case of closed investments, up to twenty per cent of the deposits disappear because of the costs, which then almost nullifies any prospect of positive income.

So look carefully and ask if in doubt. The cost burden is one of the most important criteria for assessing investment products. Even the brightest performance in the past and the rosiest forecasts for the future should not deter you from taking a sober look at costs. There are also cheap products with no commissions. But don’t expect a seller to recommend them to you.

4. Document what your investment advisor advises you

Most of the people cannot or do not want to look after their assets entirely independently and without advice. Many go to a bank or what is known as an independent consultant, who can and must also only sell products. Some even turn to fee advisors or robot advisors who are paid by the customer and do not earn anything from product sales.

Whoever you turn to, the advice remains a matter of trust. Anyone who needs advice doesn’t know any better than the consultant and can therefore not evaluate whether the consultant is doing his job well. A checklist with which you can inquire about qualifications, for example, does not help. If you want your trust, you should earn it. Make this clear to your advisor. This assumes that your advisor is 100 per cent behind what he said to you in the conversation.

5. Check your goals and strategies regularly

You have clarified your goals, obtained sufficient information and made an informed investment decision. And now?

As a rule, it makes no sense to reallocate your systems every few months, because it only creates new costs. An old stock market adage rightly states: “Back and forth makes pockets empty”.

Even so, you should check your finances regularly. Because life situations can change, unforeseen events can occur. After some time or after an inheritance, the focus may no longer be on the return, but above all on liquidity, because your plans have changed and you need to dispose of the money quickly.

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