Why You Risk Your Assets With “Safe” Investments. Many investors these days are not interested in increasing their wealth on a large scale. You mainly want to get it – so don’t take the risk of loss. That is why investments that bear the “safe” label are very popular with savers. To clarify this question, one should first get an overview of which types of investment are considered “safe” because “safe” investments have many faces.
1 | Savings Contracts
The savings contract is a collective term for various investment offers from banks – such as the savings bond, which is often used synonymously with the savings contract. The savings bond has a predetermined term of a few years and a fixed interest rate. It can also contain a so-called subordination agreement. This means that the statutory deposit protection does not apply and that in the event of a default, other creditors are served first before the saver. For this risk, you get a higher interest rate.
2 | Savings Accounts
The traditional savings account, the oldest form of the savings account, is still the most popular form of investment because of low-interest rates. Savings books do not offer the investor an advantage over the daily or fixed deposit account, both of which offer higher interest rates. The deposits are just as safe there.
3 | Fixed Deposit
With a fixed-term deposit account, the customer makes a certain amount available to the bank and agrees on a fixed term for the investment (minimum duration for this is one month at almost all banks). Then he can no longer access his money until the repayment date. The bank, in turn, cannot change the interest rate during the investment period.
4 | Overnight Money
With the overnight money account, the customer provides the bank with a certain amount of money over an indefinite period of time (usually 1-12 months) and receives an interest in return. The advantage is that you can access your savings at any time without having to comply with a notice period. On the other hand, the bank can change the interest rate every day.
5 | Bonds
Most bonds are secured by mortgages, followed by loans from the banks to the public sector and ship loans. This collateral is separated from the bank’s assets so that they are protected mainly against payment defaults should the bank become insolvent.
6 | Government Bonds
Government bonds are long-term debt securities that are issued by governments. The state uses the bonds to raise money on the international capital market that it needs for state operations and investments. Government bonds from countries with reasonable national budgets are considered to be the safest securities in the world.
7 | Corporate Bonds
In principle, hardly any group has the same creditworthiness as reliable countries, which is why corporate bonds are generally viewed as riskier than government bonds.
8 | Life Insurance
Endowment life insurance is a classic old-age provision. The policyholder pays into the insurance over decades and, when the contract expires, receives a sum agreed in the insurance policy, including total interest.
9 | Own Home / Building Loan Agreement
Investing in intangible assets such as real estate is very popular. For many citizens, a debt-free, owner-occupied property is ideal for a retirement provision. But, in this case, if interest rates rise over the next few years, you will receive a loan on more favourable terms than you would from a bank at a later date. However, in general, as a saver, you need to make sure that you also need real estate loans and that real estate loan interest rates will rise. For wealth accumulation, a savings deal is not worthwhile.
10 | Real Estate Funds
A real estate investment – especially in cities – can be a safe, long-term financial investment with high value-added potential. Real estate funds are a safe alternative for investors who do not want to invest all of their capital in a single property because the risk spreads across multiple systems, so the probability of a total loss is low. The wealth is concentrated in funds invested in several properties at once.
11 | Gold
The rare precious metal is considered an inflation-resistant investment and a guarantee of lasting value. However, since its high level, the price of Gold has fluctuated depending on the economic and political situation of each country. It also depends on the currency rate, so the precious metal is indirectly subject to currency fluctuations. Gold investment is also suitable as inflation protection and as an investment alternative for the worst-case scenario in the financial markets.
WHAT DOES “SAFE” MEAN?
What qualifies all of these forms of investment as “safe”? For investors who invest their money in – regardless of the way (savings book, fixed deposit, etc.) – the statutory deposit protection first applies. The banks’ solidarity system, as well as the statutory deposit insurance, are a fundamental reason why bank deposits (up to a certain amount) are considered “safe” for customers. Should something happen to their bank, the others step in. But what if a widespread bank failure occurs? Then even the best security systems are of no use. Of course, such a scenario is unlikely – but it can never be ruled out one hundred per cent.
There are real securities such as Gold or real estate, which represent something tangible. No matter how much the price drops – you still have something “in your hand” that has an absolute value. However, if everyone owned Gold or property in abundance, this value could not be realized. Nobody would give you money for the Gold or the house. So here, too the term “safe” is only relative. To sum up, there are certain factors that qualify investments as “safe”: security systems, the reputation and creditworthiness of those who accept investors’ money and the tangibility of the asset. However, there is still a specific residual risk everywhere. Therefore, there is no silver bullet for a crisis-proof investment.